LUTZ BUSINESS INSIGHTS
Is Your Business Transferable?
RYAN MCGREGOR, LUTZ M&A MANAGER
Does your business rely on you to generate revenue? Does most of your revenue come from a few customers? Does your company lack depth of management? Do you have short term or no contracts with customers or suppliers? Do you have outdated technology for your industry? Are there limited barriers to entry?
If you have answered yes to most of these, then transferring your business may be difficult. When it comes to selling you really should ask yourself, why would someone buy my company? What are they really purchasing?
“Intellectual capital is knowledge that transforms raw materials and makes them more valuable.” – Thomas A. Stewart, The Wealth of Knowledge
Christopher M. Snider, author of “Walking to Destiny: 11 Actions an Owner MUST Take to Rapidly Grow Value & Unlock Wealth”, breaks intellectual capital or knowledge assets into four groups. He titled these groups Human Capital, Customer Capital, Structural Capital and Social Capital.
1) HUMAN CAPITAL measures the depth and talent of your team. If a buyer feels your team has the know-how and know-what, they will pay more.
2) CUSTOMER CAPITAL considers how entrenched are you in your customer’s business. Do they rely on you to be successful?
3) STRUCTURAL CAPITAL is focused on the infrastructure of a business. These are the systems and tools that allow the human capital to interact with the customer capital.
4) SOCIAL CAPITAL could be best described as your company’s culture or brand. This is the secret sauce! You could have the best product in the world with a great distribution system, but if you don’t have the workforce that cares about the perfection of the product, the customer service when things go wrong, or the empathy to care about their fellow employees, the business will eventually be impacted.
An important thing to consider when implementing a strategy for making your business more transferable is acknowledging this actually helps you right now. For instance, most business owners miss the concept that delegating more work to employees will free up time for you to spend on more impactful business decisions, or even allow you to take some time to enjoy activities outside of the business.
The key concept to the transferability of a business is what can be transferred, and is it valuable enough for someone to pay for it. Furthermore, if you find that you are integral in most of the value in the company, then it may not be transferable. Before you determine when you are going to transition your business, you should review these concepts.
ABOUT THE AUTHOR
RYAN MCGREGOR + CONSULTING DIRECTOR
Ryan McGregor is a Consulting Director at Lutz M&A with a combined 14 years of related experience. He specializes in business consulting, valuation, and sell-side advisory services.
AFFILIATIONS AND CREDENTIALS
- Alliance of Merger & Acquisition Advisors, Member
- National Association of Certified Valuators and Analysts, Member
- Certified Merger & Acquisition Advisor
- Certified Valuation Analyst
- BSBA in Management, University of Nebraska, Kearney, NE
- Master of Investment Management and Financial Analysis, Creighton University, Omaha, NE
- Master’s in Business Administration, Creighton University, Omaha, NE
- Past volunteer for various local nonprofit organizations including: Juvenile Diabetes Research Foundation (JDRF), Habitat for Humanity, Red Cross and Open Door Mission
- Succession Plans for Family-Owned Businesses: Why You Should Start Now
- Is Your Business Transferable?
- Exiting Your Business is Inevitable: Keys to a Successful Transition
- 8 Tips to Maximize Value in Your Business
- Mid-Market Buyer Groups
- Manage These Risks to Create More Value
- Current Market Trends for Main Street and Lower Middle Market Businesses
- Why Exit Planning Matters
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