Exit Planning 101: Understanding Your Strategic Value

As business owners analyze and formulate their exit plan with their trusted advisors maximizing the value of his or her business is typically at the forefront of the discussions. Strategic value of a business is a simple calculation:

cash + sales X market multiplier = strategic value

Obviously, increasing the profitability of a business is a way to drive up the strategic value, but a sure-fire way to increase the market multiplier and thus the strategic value is to analyze and maximize the intangible attributes of the business.

The tangible assets of your business are tracked by traditional accounting systems; looking at revenues and expenses largely creates black and white details that show potential buyers the profits of the business.

As this metric is simple to analyze, the profitability of a business only will add 1 or 2x to the market multiplier. However, a business that can create and solidify the transferability of intangible attributes can increase the market multiplier by more than 3x.

The intangible attributes of a business are:

  • Human Capital;
  • Social Capital;
  • Structural Capital; and
  • Customer or Client Capital.

Strong legal counsel can assist in maximizing the value of the four intangible assets of your business through mitigating risk, strengthening contractual relationships, and protection of your business’ brand through intellectual property counsel.
Ultimately, buyers pay more for businesses with strong intangibles. If you have a strong brand, excellent client relationships, a high-performing management team, and post-sale limited liability, you will also see higher earnings which will drive your business value higher.
The legal team here at Jacko Law Group, PC (“JLG”) is experienced in advising business owners through the sale and transition of their businesses. Further, JLG with their Certified Exit Planning Advisor, are able to provide support and coordination among all your professionals to ensure that you have a complete Exit Plan that seeks to maximize the value of your business upon its sale or transition. For more information or to speak with strategic counsel, contact us today.

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