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The 5 Stages of Value Maturity Podcast Series: Stage 4 – Harvest Value

In this five-part podcast series, we’re hosting exit planning expert Mike Trabert to discuss the five stages of a value maturity cycle that will help position your business for a successful transition. A partner at Skoda Minotti, Mike leads the firm’s Value Acceleration & Exit Planning and Transaction Advisory Services groups. He is a certified valuation analyst and the author of new e-book The 5 Stages of Value Maturity.

Over the next few months, we will cover each of these five stages in a value maturity cycle:

Now that you’ve identified the actual value of your business, proactively taken steps to protect that value and developed a strategic plan for continuing to build value over the long run, it’s time to move onto stage four of the value maturity cycle – harvesting value.

At this point in the process, your small business should be primed and ready for the transition of ownership. In order to achieve this, you will need to identify the succession option by which you will transition your business, position that option in a way you see most appropriate and then harvest your desired value.

On a basic level, transition options are categorized as either internal or external:

Internal Options

  • Family or Intergenerational Transfer – As the name suggests, this means the ownership is transferred to one or more family members. Most often, children will be next in line to inherit a family business.
  • Management Buyout – This occurs when existing managers acquire a large portion or the entirety of a business, either from the parent company or from private owners.
  • Sale to Existing Partners – With this option, success of the business transition is closely tied to whether there is a solid buy-sell agreement in place.
  • Employee Stock Ownership Program – This means that employees of the company will use pre-tax, borrowed funds to acquire shares from the owner.

External Options

  • Third-Party Sale – This occurs when an owner sells the business to a strategic/financial buyer or private equity firm through a negotiated sale, controlled auction or unsolicited offer.
  • Recapitalization/Refinance – Under this scenario, the owner finds new ways to fund the company balance sheet, usually by bringing in an equity investor or lender to act as a partner in the business. The owner can then sell a minority or majority position.
  • Orderly Liquidation – Although this isn’t the first option for most owners, it works best when the asset value exceeds the going-concern value – in other words, when the sum of the parts is worth more than the whole.

When considering your transition options, it’s important to take time to consider their respective pros and cons and weigh each option against your business, financial and personal goals before determining which route is the best fit.

To learn more, listen to this week’s podcast with exit planning expert Mike Trabert!

Posted by: Jeffrey Kadlic A co-founder and managing partner at Evolution, Jeffrey has spent the past 15 years as an investor and private equity professional with a true passion for working with dynamic small businesses. @kadlic

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