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Know and Grow the Value of Your Business: An Owner's Guide to Retiring Rich

Book Description

A 63-year-old woman said to author and valuation expert Tim McDaniel, "I need to sell my business for $2.5 million to support my country club lifestyle." The reality was that her business was worth less than $1 million. How could she have been so wrong? What was the long-term impact of her misinformation? In a flash, McDaniel realized that most owners work in their businesses and not on their businesses. McDaniel, veteran of over 1,800 valuation and M&A deals, has seen the look of surprise on client faces far too often: "It's only worth that much?!"

In the rush of day-to-day work and decisions, business owners sometimes forget that their business is an investment—and something they need to watch, nurture, and care for just as they would a valuable antique vase or painting. Know and Grow the Value of Your Business: An Owner's Guide to Retiring Rich shows readers how to develop the "investment mindset," value the business, bolster that value and maximize the return on their investment, and, finally, "exit" the business either through a sale to outside parties or by passing it on to family or other business insiders.

This information couldn't be more important: In published surveys, and based on McDaniel's personal experience, the majority of a business owner's wealth (60% to 80%) is tied up in the value of the business. This is their most important asset, but they usually guess at its value and have no concrete plan to increase that value. They also have trouble determining the optimal way to exit the business. More often than not, this leads to heartache; the owner is not prepared financially or psychologically for life after exiting the business.

More than anything, this book shows that an investment is only successful when the owner is able to exit on his or her terms. An exit can occur through a well-thought-out plan, or it can be forced by circumstances beyond an owner's control—or something in between. This book explains the various exit scenarios and the advantages and disadvantages of each and provides owners with tools and exercises to help them determine which exit strategy is right for them. In short, this book helps business owners get the most for their business when they decide it's time to move on.

What you'll learn

  • The importance of treating your ownership interest in a business the same way you would treat the shares in your stock portfolio: "Like an Investment."

  • How a company is valued, using terms that business owners can understand.

  • The ways you can increase the value of your business and how an outside buyer will view your company.

  • Existing exit strategies, and the advantages and disadvantages of each.

  • Why timing might be the most critical component of your exit strategy.

  • How to begin the succession planning process and knowing the critical components of a good succession plan.

Who this book is for

Those with businesses with revenues up to about $30 million—90 percent of all business owners in the U.S., according to the United States Census Bureau. This amounts to over 12 million businesses in the United States alone. The principles the book espouses will be just as valid in countries besides the U.S. except for the tax advice author Tim McDaniel offers.

Table of Contents

  1. Title Page
  2. Dedication
  3. Contents
  4. Foreword
  5. About the Author
  6. Acknowledgments
  7. Introduction
  8. PART I. Treating Your Company Like an Investment
    1. CHAPTER 1. Country Club Lifestyle
      1. Definitions
      2. What Do You Want?
      3. The Business Owner’s Dilemma
      4. Summary
    2. CHAPTER 2. The Investment Mindset
      1. Basic Investment Principles
      2. Is Your Business an Investment?
      3. Treating Your Business As an Investment
      4. Protect the Value of the Business
      5. Select Your Exit Strategy
      6. When to Exit the Business
      7. Do You Have the Investment Mindset?
      8. Summary
  9. PART II. Knowing and Growing Your Business Value
    1. CHAPTER 3. Valuation Fundamentals
      1. What Is a Business Valuation?
      2. The Valuation Profession
      3. When Is a Valuation Needed?
      4. The Valuation Engagement
      5. Important Factors to Consider in a Valuation
      6. The Three Valuation Approaches
      7. Valuation Definitions
      8. Examples in Plain English
      9. Summary
    2. CHAPTER 4. Valuation Approaches
      1. Hand-to-Hand Combat
      2. The Income Approach to Value
      3. The Market Approach to Value
      4. The Asset Approach to Value
      5. Determining Equity Value
      6. Summary
    3. CHAPTER 5. Growing Your Value
      1. Having the Mindset to Increase the Business Value
      2. Drew’s Sensational Snacks
      3. Drew’s Newfound Freedom
      4. Professionalizing Your Business
      5. Summary
    4. CHAPTER 6. Selling Your Business
      1. The Best Time to Sell Your Business
      2. Current State of the M&A Marketplace
      3. The Terms of the Deal
      4. What Are You Selling?
      5. The Steps in Selling Your Business
      6. Locate the Buyer
      7. Sign a Letter of Intent (LOI)
      8. The Tax Impact of a Sales Transaction
      9. My Top Ten Tips in Selling a Business
      10. Summary
  10. PART III . Getting Out Alive: Planning Your Exit
    1. CHAPTER 7. The Hardest Step: Succession Planning
      1. Are You Kidding Me?
      2. Why Is Succession Planning So Hard?
      3. What Will Your Legacy Be?
      4. Succession-Planning Steps
      5. Summary
    2. CHAPTER 8. Know Your Exit Options
      1. The End Will Come
      2. What Are the Exit Strategies?
      3. Summary
    3. CHAPTER 9. Know Your Exit Strategy
      1. The Procrustean Bed
      2. What Is the Next Step?
      3. Which Strategy for Your Situation?
      4. Rebelle Handbags
      5. Summary
    4. CHAPTER 10. Time for Action
      1. Critical Items to Your Plan’s Success
      2. What to Include in Your Plan
      3. Elle’s Plan to Double Her Business Value
      4. What Is Success?
      5. Summary
    5. CHAPTER 11. Epilogue
  11. PART IV. Appendices
    1. APPENDIX A. IRS Revenue Ruling 59-60
      1. Section 1. Purpose
      2. Sec. 2. Background and Definitions
      3. Sec. 3.   Approach to Valuation
      4. Sec. 4. Factors to Consider
      5. Sec. 5.   Weight to be Accorded Various Factors
      6. Sec. 6. Capitalization Rates
      7. Sec. 7.  Average of Factors
      8. Sec. 8. Restrictive Agreements
    2. APPENDIX B. Sample Engagement Letter
    3. APPENDIX C. Sample Due Diligence Request
      1. Organization and Records
      2. Financial Statements and Records
      3. Employee Matters
      4. Market and Sales Overview
      5. Material Contracts and Other Documents
      6. Legal and Litigation Matters
      7. Intellectual Property
      8. Miscellaneous
    4. APPENDIX D. Sample Family Business Creed
      1. Preamble
      2. Our Agreement
    5. APPENDIX E. AICPA Statement on Standards for Valuation Services No. 1
      1. The Valuation Report
      2. APPENDIX A: llustrative List of Assumptions and Limiting Conditions for a Business Valuation
      3. APPENDIX B: International Glossary of Business Valuation Terms†
  12. Index