Building Business Value: Strengthen and Harvest Your Company While Leaving a Lasting Legacy

January 11, 2019 | A new slate Brian Crotty, Managing Director, HDH Advisors,

Business owners often ask us how to plan for their exit by building business value while keeping in control until they’ve achieved their financial goals.

The first step involves putting together a team of advisors to help meet your goals and answer questions that preserve your legacy.

Mark Wyzgowski, managing principal of CliftonLarsonAllen, shared from his firm’s survey of over 1,000 business owners that 61% reported a transition event in the next 10 years, 55% had thought about it and 24% were totally unprepared. This tells us that most business owners are not doing enough to make sure their goals are met.

Building a legacy is different to every business owner and can include family financial strength, inheritance or philanthropic goals. The first step is understanding your true business value and building for a successful transition.

To increase business value for a successful transition, Jim Nalley, vice president of BCC Advisers, suggests understanding the 4 C’s that drive value.

  1. Human Capital – Talent
  2. Customer Capital – Relationships
  3. Structural Capital – Infrastructure
  4. Social Capital – Harmony

Utilizing the four C’s in business helps quantify two of the most important aspects of knowing what your business is worth. The first is maximizing your cash flow and/or EBITDA and minimizing your risk as compared to your industry peers, which raises the typical multiple of earnings applied to your company.

A common mistake that business owners make when thinking about creating a plan is that they focus more on the term “Exit” than “Execution.” The overwhelming question that often arises is “Where do I begin?” Chawn Honkomp, business financial advisor for Focus OneSource, says every business owner has options:

  1. Do nothing
  2. Talk about your future
  3. Create a written exit plan
  4. Execute a business continuation program

We certainly don’t encourage choice 1, but it is a choice too often made by today’s owners. The next step is identifying and prioritizing your exit goals by setting up a time to talk to your most trusted advisor that can help put together your team of advisors.

Kevin Lentz, CEO of Performance Marketing, has advocated his own personal style of succession planning in which every year he meets with all his advisors at one time (valuation/accountant, estate lawyer, financial advisor, insurance agent) to ensure all his goals are on track and in place for a successful business ownership transition.

Planning for your exit maximizes value, minimizes risk and keeps you in control until you’ve achieved financial security. Unfortunately, the statistics tell us that most business owners are not as proactive as they should be and need to have these conversations before preserving a lasting legacy becomes an afterthought.