10 Feb What We Mean When We Say Maximum “Value”
Business owners hold something of value — ownership in a business. And, in the life of an owner, there typically comes a time when he/she becomes willing to part with his ownership in exchange for some things he/she values. Typically, the thing of value is money. But in every deal there are many deal points. Many more than just money.
When a business owner hires Acquisition Advisors to represent him/her in the sale of his/her business, our typical task is to maximize value. But many business sellers fail to fully comprehend that “value” can mean much more than money. That, if they will think about it, “value” can be extracted in many forms other than cash, such as:
- notes payable
- earn-out agreements
- releases of liability
- waiver of contingent liabilities
- ongoing benefits, such as insurance coverage
- employment or consulting agreement for the selling owner
- seller’s retention of rights, freedoms or certain assets (in whole or in part)
- employment agreements for employees
- agreement to lease certain real estate or other assets
- agreement to retain the business in a certain community
The list can literally be endless.
In the sale preparation process, Acquisition Advisors works with the seller-client to determine all the types of “things of value” the seller might enjoy or find value in. Then, we prioritize. For example:
- cash at closing
- long-term “market” lease of seller-owned real estate
- firm obligations to pay cash post-closing
- employment agreements for top 3 executives
- earn-out agreements
- release of contingent liabilities
Once the “buckets” are lined up, in order of preference, the task is to begin filling them up. Using the priority list above, the first task is to maximize the cash at closing payment. Once we’ve exhausted what the buyers are willing and able to pay in cash at closing, we go for bucket #2, and so on.
So what we mean when we say “maximize value” is anything that is of value to the seller. It can be much more than cash. In fact, it should be much more than cash because the buyers have a limited amount of cash they can provide at closing, but they always have many other “things of value” they can provide, and will provide, if properly and skillfully provided with the opportunity and motivation.