BUSINESS VALUATION

Valuation
There are a number of tools available to predict value including complex software tools that promise to reduce valuation to a simple formula. However, all of valuation comes down to this simple truth: A business is worth what a buyer is willing to pay. pay.

Fair Market Value
³Fair Market Value is defined as the value that a willing seller and a willing buyer, both being informed of the relevant facts about the company, could reasonably conduct a buybuy-sell transaction, neither party under any compulsion to do so.´

3

NonNon-quantitative Factors in Valuing a Business
Competition Market Future Community Development Legal Commitments Union Contracts Buildings Product Prices

What can the term ³value´ mean?
Fair market value. value.
This is the price at which a willing seller would sell and a willing buyer would buy every sale would ultimately constitute a fair market value sale.

What can the term ³value´ mean?
Intrinsic value. This is perceived value arrived value. at by interpreting balance sheet and income statements through the use of ratios, discounting cash flow projections, and calculating liquidated asset value Investment value. This is the worth of the value. business to an investor and is based on the individual requirements of the investor as to risk, return, tax benefits, and so forth

What can the term ³value´ mean?
GoingGoing-concern value. value.
This is the current status of the business as measured by financial statements, debt load, and economic environmental factors, such as government regulation, that may affect the longlongterm continuation of the business.

What can the term ³value´ mean?
Liquidation value. This value assumes the value. selling off of all assets and calculating the amount that could be recovered from doing so. Book value. This is an accounting measure of value. value and refers to the difference between total assets and total liability. It is essentially equivalent to shareholders¶ or owners¶ equity.

Why Businesses Are Appraised
Mergers and Acquisitions Allocation of Purchase Price Estate and Gift Taxes Marital Dissolution Liquidation or Reorganization of a Business BuyBuy-Sell Agreements Stockholder Disputes Financing Initial Public Offering Damages Litigation Charitable Contributions Financial Reporting

Appraisal Principles
Principle of Substitution Principle of Future Benefits 

Principle of Anticipation

Standards of Value
Fair Market Value

Fair Market Value
...the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.

Standards of Value
Fair Market Value Fair Value

Fair Market Value v Fair Value
Willing Buyer. Willing Seller. Neither is under compulsion. Assumes a typical hypothetical buyer and seller. 5. A price that is equitable to both. 6. Assumes both buyer and seller knowledge. have equal knowledge. 7. Assumes reasonable knowledge of both parties. 1. 2. 3. 4.

1. Not always a Willing Buyer. 2. Not always a Willing Seller. 3. Buyer may be compelled, but seller is. is. 4. A concept of "fairness" to the seller, considering the inability to keep the stock. 6. No such assumption. 7. No such assumption

Standards of Value
Fair Market Value Fair Value Investment Value

Standards of Value
Fair Market Value Fair Value Investment Value Intrinsic Value

Factors To Consider
Nature of the business and history of the enterprise since its inception. The economic outlook in general and the condition and outlook of the specific industry in particular. The book value of the stock and the financial condition of the business. The earning capacity of the company. The dividend-paying capacity. dividendWhether or not the enterprise has goodwill or other intangible value. The market price of stocks of corporations engaged in the same or similar line of business having their stocks actively traded in a free and open market, either on an exchange or over-the-counter. over-the-

Determining the Value of the Business
1.

3.

4.

5.

Discounted cash flows: cash flows reduced flows: in value because they are to be received in the future Net realizable value: amount for which an value: asset will sell, less the cost of selling Replacement value: cost to acquire an value: essentially identical asset Earnings multiple: ratio of value of a firm to multiple: its annual earnings
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Business Valuation Steps - 1
Define Purpose Understand size & characteristics of Client Assessment of People and Markets ---------------------------------------------Gather Additional Data Recast Financial Statements Ratio Analysis / Industry Comparison
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Business Valuation Steps - 1
Define Purpose Understand size & characteristics of Client Assessment of People and Markets ---------------------------------------------Gather Additional Data Recast Financial Statements Ratio Analysis / Industry Comparison
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Valuing the Business
AssetAsset-Based Valuation
Estimates the value of the firm¶s assets; does assets; not reflect the value of the firm as a going concern.

MarketMarket-Comparable Valuation 

Considers the sale prices of comparable firms; firms; difficulty is in finding comparable firms

Earnings based Valuation 

Compares the expected and required rates of return on the amount of capital to be invested in the business.

Determining the Value of a Business
Balance Sheet Technique 

Variation: Adjusted Balance Sheet Technique Variation 1: Excess Earnings Approach Variation 2: Capitalized Earnings Approach Variation 3: Discounted Future Earnings Approach

Earnings Approach 
 

Market Approach

Adjusted Book Value
The book value of a going concern is simply the owner¶s equity, that is, the value of the assets equity, less the outstanding debts.

Balance Sheet Techniques
Book Value of Net Worth = Total Assets - Total Liabilities

Variation: Adjusted Balance Sheet Technique:
(Adjusted for negatives or positives from balance sheet in inventory, equipment, land/buildings/receivables, etc) The balance sheet method lets one take the perspective of "I walked away from this business tomorrow, sold everything that it owns, how much do I get?"

Income Approach Definitions of Income
Net income after tax Net income before tax Cash flow (gross or net) Debt free net income Debt free cash flow (gross or net) EBIT, EBDIT or EBDITA (EBITDA) Earnings before owners¶ compensation, interest and taxes (owners¶ discretionary cash flow)

Income Approach Single Period Model
Capitalization: The process of converting a benefits stream into value by dividing the benefits stream by a rate of return that is adjusted for growth.

Income Approach MultiMulti-Period Model
Discounting: The process of converting a future series of benefit streams into value by bringing them to present value at a rate of return that reflects the risk inherent in the benefits stream.

Income Approach

Capitalization of benefits method Discounted future benefits method Excess earnings method

Excess Earnings Method
1. Compute the adjusted tangible net worth of the business. Tangible assets are adjusted up or down for market value; then liabilities are subtracted. Compute the opportunity cost of this investment. How much would the investor/buyer earn by investing the same amount in another, comparable investment? Forecast net earnings. Earnings from previous income statements can provide a basis for the forecast

2.

3.

Excess Earnings Method
4. Calculate the extra earning power, which is the difference between forecasted earnings and opportunity costs. 5. Estimate the value of intangible assets or goodwill. If the business has extra earning power, that figure can be multiplied by what is known as a years-of-profit (YOP) figure. years-of-

Earnings Approaches
Variation 1: Excess Earnings Method Step 1: Compute adjusted tangible net worth: 1: Adjusted Net Worth = 2746380 - 1143250= 1603130 Step 2: Calculate opportunity costs of investing: 2: (25% is normal rate of return) Investment Salary 1603130 x 25% = 400780 + 250000 Total 650780

Step 3: Project earnings for next year: 740000 3:

Excess Earnings Method
Step 4: Compute extra earning power (EEP): 4: EEP = Projected Net Earnings - Total Opportunity Costs = 740000 - 650780 = 89220 Step 5: Estimate the value of the intangibles (³goodwill´): 5: Intangibles = Extra Earning Power x ³Years of Profit´ Figure* = 89220 x 3 = 267660 * Years of Profit Figure ranges from 1 to 7; for a normal risk business, it is 3 or 4.

Excess Earnings Method
Step 6: Determine the value of the business: 6: Value = Tangible Net Worth + Value of Intangibles = 1603130 + 267660 = 1870790 Estimated Value of the Business = 1870790

Earnings Approaches
Variation 2: Capitalized Earnings Method: Value = Net Earnings (After Deducting Owner's Salary) (After Rate of Return* * Rate of return reflects what could be earned on a similar-risk similarinvestment. Value = 74,0000 - 25,0000 = 196,0000 25%

Capitalization of Earnings
Either EBIT or EBITDA is divided by a capitalization rate, which is the return the buyer requires on the investment For example, if the company¶s EBITDA was 500,000 and the buyer needed a 20 percent return on investment, the price the buyer would be willing to pay would be 2,500,000.
EBITDA / REQUIRED ROI = MAXIMUM PURCHASE PRICE

Capitalization Model V = E / k-g
E = Earnings expected in next period k = Discount rate g = Long term sustainable growth rate

Single Period Model Example
Adjusted Net Income Forecasted Growth Estimated Future Income Capitalization Rate Indicated Value from Operations Add: Net Nonoperating Assets Total Enterprise Value Rounded 1,000,000 x 1.05

1,050,000 ÷ 25.0 %

4,200,000 357,350 4,557,350 4,600,000

MultiMulti-Period Model
E1 V= --------- + (1 + i)1 E2 E3 Et --------- + --------- +... -------(1 + i)2 (1 + i)3 (1 + i)t

Where E = Benefit stream i = Discount rate

Earnings Approaches
Variation 3: Discounted Future Earnings Method: Step 1: Project earnings five years into the future: 1: 3 Forecasts: Pessimistic Most Likely Optimistic

$

$

Compute a weighted average of the earnings: Pessimistic + (4 x Most Likely) + Optimistic 6

Discounted Future Earnings Method
Step 1: Project earnings five years into the future: 1: Year 1 2 3 4 5 Pess 65,000 74,000 82,000 88,000 88,000 ML 74,000 90,000 100,000 109,000 115,000 Opt 92,000 101,000 112,000 120,000 122,000 Weighted Average 75,500 89,167 99,000 107,333 111,667

Discounted Future Earnings Method
Step 2: Discount weighted average of future earnings at the 2: appropriate present value rate: 1 (1 +k) t

Present Value Factor =

where... k = Rate of return on a similar risk investment t = Time period (Year - 1, 2, 3...n)

Discounted Future Earnings Method
Step 2 (continued): Discount weighted average of (continued): future earnings at the appropriate present value rate: Year 1 2 3 4 5 Weighted Average x PV Factor 75,500 89,167 99,000 107,333 111,667 .8000 .6400 .5120 .4096 .3277 Total = Present Value 60,400 57,067 50,688 43,964 36,593 248,712

Discounted Future Earnings Method
Step 3: Estimate the earnings stream beyond five years: 3: Weighted Average Earnings in Year 5 x 1 Rate of Return = 111,667 x 1 25%

Step 4: Discount this estimate using the present value factor for 4: year 6: 446,668 x .2622 = 117,116

Discounted Future Earnings Method
Step 5: Compute the value of the business: 5: Value = Discounted earnings in years 1 through 5 = 248,712 + Discounted earnings in years 6 through ?

+ 117,116 = 365,828

Estimated Value of Business = 365,828

Discounting Cash Flows
Calculating how much an investor would pay today to have a cash flow stream of X rupees for X number of years into the future.

Multiple of Earnings
Using a price/earnings (P/E) ratio to value a business is a common method among publicly owned companies because it¶s simple and direct This ratio is determined by dividing the market price of the common stock by the earnings per share.
P/E RATIO = STOCK PRICE / EARNINGS PER SHARE

Commonly Used Multiples
Price/net earnings Price/prePrice/pre-tax earnings Price/cash flow Price/revenues Price/dividend capacity or yield Price/operating profit Price/gross profit Price/book value Price/EBIT Price/EBDIT

Risk Factors
Economic risk Business risk Operating risks Financial risks Asset risks Product risks Market risks Technological risks Regulatory risks Legal risks

Market Approach
Step 1: Compute the average Price-Earnings (P-E) Ratio for 1: Price(Pas many similar businesses as possible: Company P-E Ratio P1 3.3 2 3.8 Average P-E Ratio = 3.975 P3 4.7 4 4.1 Step 2: Multiply the average P-E Ratio by next year¶s Pforecasted earnings: Estimated Value = 3.975 x 740000 = 2941500

After-tax earnings Multiple Oper. Entity Value Net Non-oper. Assets Total Entity Value Rounded

PRICE TO EARNINGS 959,446 x 6.20

5,948,565 + 250,000 6,198,565 6,200,000

Market Approach Example
GUIDELINE CO. Bananas R Us, Inc. Fruits, Inc. Cherry Corp. Grapes Corp. DATE 10/31/95 12/31/95 12/31/95 11/30/95 P/E 8.70 9.30 8.50 6.60 7.80 8.50 6.20 P/S 55.30% 47.43% 35.25% 54.80% 48.20% 48.20% 44.00% P/B 2.85 4.65 3.65 3.90 4.25 3.90 2.50 Apple Company, Inc. 12/31/95

Median Multiple Selected Multiple

Financial Statement Adjustments
GAAP adjustments Non-operating/nonNon-operating/non-recurring adjustments Discretionary adjustments

Discretionary Adjustments
Owner's compensation Owner's perquisites Entertainment expenses Automobile expenses Compensation to family members Interest expense

Discount and Capitalization Rates

Components of a Discount Rate
Risk free rate of return General or equity risk premium Specific risk premium

Discount For Lack of Marketability
Restricted Stock IPO Studies Cost of Floatation

Valuing a going concern
The capitalization of future maintainable earnings method is the most common way of valuing an existing business in good order Multiplying an estimate of future maintainable

Valuing new businesses
The discounted cash flow method is usually used to value new or immature businesses or a business

The Lack of Strategic Planning
‡ Reasons for the Lack of Strategic Planning 1. Time scarcity 2. Lack of knowledge 3. Lack of expertise/skills 4. Lack of trust and openness 5. Perception of high cost

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Figure

13.3

The Entrepreneurial Strategy Matrix: Independent Variables

Source: Matthew C. Sonfield and Robert N. Lussier, ³The Entrepreneurial Strategic Matrix: A Model for New and Ongoing Ventures.´ Reprinted with permission from Business Horizons, May/June 1997, by the trustees at Indiana University, Kelley School of Business.

13± 13±59

Figure

13.4

The Entrepreneurial Strategy Matrix: Appropriate Strategies

Source: Matthew C. Sonfield and Robert N. Lussier, ³The Entrepreneurial Strategic Matrix: A Model for New and Ongoing Ventures.´ Reprinted with permission from Business Horizons, May/June 1997, by the trustees at Indiana University, Kelley School of Business.

13± 13±60

Venture Development Stages
‡ Life-Cycle Stages of an Enterprise Life-

(Chandler)
1.

Initial expansion and accumulation of resources Rationalization of the use of resources Expansion into new markets to assure the continued use of resources Development of new structures to ensure continuing mobilization of resources

2.

3.

4.

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Figure

13.5

A Venture¶s Typical Life Cycle

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The Entrepreneurial Company in the Twenty-First Century Twenty

Major Challenges: 

Building dynamic capabilities that are differentiated from those of emerging competitors Internal² Internal²utilization of the creativity and knowledge from employees External² External²the search for external competencies to complement the firm¶s existing capabilities.
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13.6

The Entrepreneurial Mindset

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Table

13.2

The Managerial versus the Entrepreneurial Mind-Set

Managerial Mind-Set
Decision-making assumptions The past is the best predictor of the future. Most business decisions can be quantified. The best decisions are those based on quantitative analyses. Rigorous analyses are highly valued for making critical decisions. Law of large numbers: Chaos and uncertainty can be resolved by systematically analyzing the right data. Problems represent an unfortunate turn of events that threaten financial projections. Problems must be resolved with substantiated analyses.

Entrepreneurial Mind-Set
A new idea or an insight from a unique experience is likely to provide the best estimate of emerging trends. New insights and real-world experiences are more highly valued than results based on historical data. Law of small numbers: A single incident or several isolated incidents quickly become pivotal for making decisions regarding future trends. Problems represent an opportunity to detect emerging changes and possibly new business opportunities.

Values

Beliefs

Approach to problems

Source: Mike Wright, Robert E. Hoskisson, and Lowell W. Busenitz, ³Firm Rebirth: Buyouts as Facilitators of Strategic Growth and Entrepreneurship,´ Academy of Management Executive 15(1): 114.

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Building the Adaptive Firm
‡ An Adaptive Firm

One that Increases opportunity for its employees, initiates change, and instills a desire to be innovative. ‡ How to remain adaptive and innovative:  Share the entrepreneur¶s vision  Increase the perception of opportunity  Institutionalize change as the venture¶s goal  Instill the desire to be innovative: ‡ A reward system ‡ An environment that allows for failure ‡ Flexible operations ‡ The development of venture teams Flexibility, innovation, speed, strategic leadership are important for growing business 

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The Transition from an Entrepreneurial Style to a Managerial Approach
‡ Impediments to Transition: 
A

highly centralized decision-making system decision An overdependence on one or two key individuals,  An inadequate repertoire of managerial skills and training  A paternalistic atmosphere

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Table

13.3

The Entrepreneurial Culture versus the Administrative Culture
Administrative Focus
Characteristics Pressures Social contracts Performance measurement criteria Acknowledgement of multiple constituencies Negotiation about strategic course Risk reduction Coordination with existing resource base Need to reduce risk Incentive compensation Turnover in managers Capital budgeting systems Formal planning systems Power, status, and financial rewards Coordination of activity Efficiency measures Inertia and cost of change Industry structures Need for clearly defined authority and responsibility Organizational culture Reward systems Management theory

Entrepreneurial Focus
Characteristics Driven by perception of opportunity Pressures Diminishing opportunities Rapidly changing technology, consumer economics, social values, and political rules Action orientation Narrow decision windows Acceptance of reasonable risks Few decision constituencies Lack of predictable resource needs Lack of control over the environment Social demands for appropriate use of resources Foreign competition Demands for more efficient use Increased resource specialization Long resource life compared with need Risk of obsolescence Risk inherent in the identified opportunity Inflexibility of permanent commitment to resources Coordination of key noncontrolled resources Challenge to hierarchy Employees¶ desire for independence

Strategic Orientation

Planning systems and cycles

Commitment to Seize Opportunitie s

Revolutionary, with short duration

Evolutionary, with long duration

Commitment of Resources

Many stages, with minimal exposure at each stage

A single stage, with complete commitment out of decision

Control of Resources

Episodic use or rent of required resources

Ownership or employment of required resources

Management Structure

Flat, with multiple informal networks

Hierarchy

Source: Reprinted by permission of the Harvard Business Review. An exhibit from ³The Heart of Entrepreneurship,´ by Howard H. Stevenson

13± and 13±68 David E. Gumpert, March/April 1985, 89. Copyright © 1985 by the President and Fellows of Harvard College; all rights reserved.

Balancing the Focus²Entrepreneurial versus Focus² Manager (Stevenson and Gumpert) Gumpert)
‡ The Entrepreneur¶s ‡ The Administrative

Point of View 
   

Point of View 


Where is the opportunity? How do I capitalize on it? What resources do I need? How do I gain control over them? What structure is best?  

What resources do I control? What structure determines our organization¶s relationship to its market? How can I minimize the impact of others on my ability to perform? What opportunity is appropriate?

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Understanding the Growth Stage
‡ Key Factors During the Growth Stage    

Control ‡ Does the control system imply trust? ‡ Does the resource allocation system imply trust? Responsibility ‡ Creating a sense of responsibility that establishes flexibility, innovation, and a supportive environment. Tolerance of failure ‡ Moral failure ‡ Personal failure ‡ Uncontrollable failure Change

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Understanding the Growth Stage
‡ Managing Paradox and Contradiction 
Bureaucratization

versus decentralization  Environment versus strategy  Strategic emphases: Quality versus cost versus innovation

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Confronting the Growth Wall
‡ Successful growth-oriented firms have exhibited growth-

consistent themes: 
  

The entrepreneur is able to envision and anticipate the firm as a larger entity. The team needed for tomorrow is hired and developed today. The original core vision of the firm is constantly and zealously reinforced. ³Big³Big-company´ processes are introduced gradually as supplements to, rather than replacements for, existing approaches. Hierarchy is minimized. Employees hold a financial stake in the firm. 



13± 13±72

Unique Managerial Concerns of Growing Ventures
Distinction of Small Size

One-PersonOne-Person-Band Syndrome

Continuous Learning

Growing Venture

Time Managementassess, prioritise,procedures,delegate

Community PressuresPressures- participation, leadership, donation

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The Hierarchy of Business Outcomes

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Business life cycle
Several models, with same general ideas: ideas: 
 

Multiple stages Key issues, lessons, and actions at each stage Level of risk business faces changes from stage to stage

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1. Emergence: person thinks and takes Emergence: action towards starting a firm

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2. Existence: having the business in Existence: operation, but not yet stable 


Risk is high Owners lack key information

3. Success: develop information, skills, Success: and routines to grow the business¶ profits 

This is a stage that lasts a long time
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4. Resource maturity: stable level of maturity: sales and profits  

Functional areas, the market, and the products or services are being dealt with consistently and efficiently Challenge is to avoid complacency

20-78

3 key components to staving off customer complacency:   

Recency: Recency: be among the people your customers have seen in the last few days Frequency: Frequency: stay in touch with customers on a frequent basis (visits, phone calls, emails, etc.) Potency: Potency: be remembered for the right reasons

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5. Takeoff: a period of exceptional growth Takeoff:  

Might come from landing an unexpectedly gigantic contract, expanding into multiple contract, locations, or just being in the right place at the right time Most small businesses never go through the taketake-off phase

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Types of Firms

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Sales Growth: comes from several ways 
 

Increasing sales to existing steady customers Make occasional customers into steady customers Expand areas where you have small customer base Use technology to Improve efficiencies and profits Use it to create new products or services
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Technological growth: can take two forms  

Closing the Small Business
Every year, nearly 4 million go through changes in ownership and existence Harvest: Harvest: get maximum value they can for the business Initial public offering (IPO): selling stock to (IPO): public on major stock exchange

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Methods for Harvesting a Business

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After value creation Harvesting the Business
What is harvesting?
It is the sale of some or all of the equity of a company.
A number of possible ³exit routes´: 1. A trade sale to another company 2. The sale of the investment to another corporate investor such as a venture capitalist 3. The sale of equity to another individual ± such as a ³business angel´ or a fellow shareholder ± or through management busy-out or buy-in busybuy4. The sale of equity to ³the public´ through an IPO (initial public offering) on a stock exchange.

The Importance of the Exit
Harvesting (or Exiting) 

The process used by entrepreneurs and investors to reap the value of a business when they get out of it. The process involves:
Capturing value (cash value) Reducing risk Creating future options 

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Releasing the Firm¶s Cash Flows
Harvesting by Withdrawing Firm¶s Cash 

Advantages:
Retain control of firm while harvesting investment. No need to seek a buyer or incur expenses associated with sale of business 

Disadvantages
Loss of development potential and opportunities Tax disadvantages of cash withdrawal Requires patience to siphon off cash slowly

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Harvesting: Going Public
Initial Public Offering (IPO) 

Benefits of the sale of shares of stock to the public:
1. Signals to investors that a firm is a quality business and will likely perform well in the future. 2. Provides access to more investors when the firm needs to raise capital to grow the business. 3. Helps create ongoing interest in the company and its continued development. 4. Makes firm¶s stock more attractive as incentive pay to key personnel.

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Harvesting: Using Private Equity Using
Private Equity (Capital) 

Money provided by venture capitalists or private investors.

Factors in the Transfer of Family-Owned FamilyFirms
Liquidity for exiting family members  Continued financing for company growth  Maintenance of family control of the firm 

12± 12±89

Transfers: Transfers: ownership is moved from one person or group to another  



2003: around 860,000 firms were transferred within the family Nearly 1 million business sales took place Occur only among the largest small businesses

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Transfers: Transfers:    

One key goal is minimizing the tax effects of the transfer Business can lose as much as half of its value to the government Pass off: owner gives the firm to someone off: as a gift, without compensation; 38% use this Sell off: everything is sold to another off: business, with proceeds paying off remaining debts
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Terminations: Terminations: more likely for young firms 


1.8 million per year Three types of terminations:
Walkaways closing the firm and quickly paying off any debts. WorkoutsWorkouts- when the debt can¶t quickly be paid off, but the owner can make arrangements to pay it off over time BankruptciesBankruptcies- for the firm, the owner, or both. This may happen if a lot of money was invested and the company never hit the successful stage

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Selling the Firm: Buyers¶ Reasons for Purchasing a Firm
Sales to Employees 

Employee Stock Ownership Plan (ESOP)
A method by which a firm is sold either in part or in total to its employees.
Employees retirement contributions are used to purchase shares in the firm.  Frequently is the exit method of last resort.  Motivates the employee-owners employeeto perform. 

12± 12±93

Harvesting the Business
For the entrepreneur or venture capitalist:
- find the right time to sell - decide on the exit route - agree a price with the purchaser However, in a private company, there may be restrictions on the ability to sell: e.g. OwnerOwner-manager may be required to offer to the existing shareholders (who cannot/will not buy) May only be a minority shareholder without power to sell the entire venture Minority shareholding may be worthless to potential buyer although an agreed, and binding, exit mechanism with pricing formula may already exist.

Harvesting the Business
For the entrepreneur or venture capitalist:
- find the right time to sell - decide on the exit route - agree a price with the purchaser However, in a private company, there may be restrictions on the ability to sell: e.g. OwnerOwner-manager may be required to offer to the existing shareholders (who cannot/will not buy) May only be a minority shareholder without power to sell the entire venture Minority shareholding may be worthless to potential buyer although an agreed, and binding, exit mechanism with pricing formula may already exist.

Harvesting the Business
Hence, questions for the entrepreneur:
Do I wish to realize all or only part of my investment? Do I wish to continue to be associated with the company after the sale? What form of payment do I want from the sale ±equity in another company, cash on deferred terms. A pension, a consultancy retainer? Which exit route will give me the greatest returns? If I decide to float, what will it cost and who will help me? If I decide to seek a trade sale or sale to a third party, how do I find a buyer?

The Not-So-Secret Secrets of Success Not-SoCritical Success Factors (CSF): processes, benchmarks, or components of the business that are essential for the business to be profitable and competitive 


Come from sources external to entrepreneurs Fall into two categories
Outside help Entrepreneurial experience

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Entrepreneurial Experience
Being incorporated: a lawyer is likely to give small incorporated: business owners advice and help them avoid some of the major pitfalls of a new firm Employees: Employees: get more done, appeal to a larger market, source of expertise

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Entrepreneurial Experience
Extreme start-up capital: business starting with no startstart- capital: startup capital, and those starting with more than 50,000, are among those most likely to survive long term Protectable intellectual property: patents or trademarks property:

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Entrepreneurial Experience
Brand name affiliations or partners: have been partners: checked out and found to be acceptable Optimal strategies: picking and starting a business in strategies: a growing industry Presales: Presales: pilot test through contracts, orders, or letters of interest

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Measuring Success with Four Bottom Lines
The Firm: Firm: 
 

Define the level of profit that they seek Leadership of the industry Employee satisfaction and well-being well-

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Community: Community: how the business relates to the community 
   

Community impact Building trust Promoting a positive culture Enhancing flexibility Fostering innovation

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Family: Family: spend the time with your family  

Leave personal time to make the transition from work to family Clear your work list and your mind Variety of expectations, dreams, and goals Keeping the dreams alive

Yourself: Yourself: personal returns 


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