Top 5 Ways Your Marketing Efforts Can Drive Value in 2015

[alert title=”Editor’s Note:” “default”]We’re super happy to have Rachel Durkan with us  from  Paradigm Marketing.  She brings a unique perspective – as a marketing pro – to a subject near and dear to us: improving value.    [/alert]

Most business owners hope to grow their business and eventually sell it for a profit. This is no easy task, and even the most seasoned entrepreneur can face obstacles along the way. A comprehensive marketing strategy is just one piece of the whole, but it is crucial to business success.

The primary way to propel company valuation is to increase revenue and improve the bottom line. Easy, right? “To make more money, you need to sell more products/services.” But the devil is in the details, so where to start? Below are the top 5 marketing areas to concentrate on in order to propel the value of your business in 2015:

1. Diversification

Many small companies are one-trick ponies, betting their entire futures on a single product, service, location or even a single customer. And while there’s nothing wrong with that in the beginning, as a company grows, it is important to identify new revenue streams to minimize risk in tough times and leverage cross marketing opportunities in better times.

2. Marketing the business, not the business owner

Shareholder dependency is a common valuation risk factor. Many small business owners face the challenge of separating their personal and professional reputation from that of the business. This transition of relationships and responsibilities is of utmost importance as a company grows. In order to sell a business, it is imperative that the business be a self-sufficient entity.

Take my company for example:

If you go to Rachel (that’s me) instead of Paradigm Marketing and Design (that’s my company) for all your marketing needs, then what differentiates my business from a consulting service? I can’t do all the work we do for our clients without my team behind me. As an individual, I wouldn’t be able to handle the volume. However, I’m the face of the company, the community knows me and our clients know me. That is why it is so important that I encourage my team to be client facing.

Ultimately, other members – whether it is various levels of management or sales professionals – must represent the organization. A business is not just one person (though sometimes an entrepreneur may feel that way); it is a complex system that if created properly, is self-sufficient and should be marketed as such.

3. Building intangible value with a brand

A brand is a promise. A well created brand can instill a feeling, value, or perception of quality. A brand is a company’s reputation. If built correctly, whether a brand is nationwide, global, or just in a local community, a brand instills a sense of trust in consumers and represents core company values and mission. Think of some top brands -Coca Cola, McDonald’s, Budweiser, Ford, Apple – and you immediately can recall key values they promise. A strong brand will enforce customer loyalty, drive sales, and create a continuous revenue stream for an organization. Brand development also expands upon the notion of removing dependency on one key Shareholder or employee. Consumers are tied to a company name and promise – something that is easier to transition post sale compared to personal relationships.

4. Ask clients what they want

Understand the market. This is such a simple idea, yet most business owners don’t take the time to do it. At the end of the day, a company provides a solution to its clients. A client’s wants and needs will determine whether that solution is profitable or not. Before launching a new product line, creating a new service offering, or even running a new promotion, stop and think about what the client base is looking for. This can be determined simply by asking them. Have a conversation with customers, develop an online or in house survey to get their feedback, or hire a marketing team to create a formal research process.

5.  Freeing up shareholders time

In every entrepreneur’s career there comes a point when they must start working on their business instead of in their business. In order to do so effectively, a business owner should find an expert to wear the necessary hats for them rather than juggle all the pieces alone. Ultimately, a Company commands higher valuation multiples when there is a clear management hierarchy in place, defined roles and responsibilities shared among a team, and processes and procedures in line that promote accountability, efficiency, transferability, and ultimately, expansion potential experience through organic growth or acquisition.

In 2015, consider bringing in subject matter experts to help you develop the different areas of your business- from accounting to marketing to HR management. When we are too close (emotionally and professionally) to something, it is hard to see the forest for the trees. An expert in the form of a consultant, vendor or new team member can help to give a new perspective to the way your business is run.

About Rachel Durkan & Paradigm Marketing and Design

Rachel Durkan is the founder and owner of Paradigm Marketing and Design which provides full service marketing support including strategy development and execution, and creative services. Rachel launched Paradigm initially as a website design/development agency but quickly identified a need in the market place for comprehensive marketing support services. Paradigm is unique in that it integrates a client’s entire marketing strategy to be cohesive and ensure that each marketing initiative (brand development, website design, communication initiatives, etc.) supports the strategic plan to produce a long term return on investment.

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5 Steps to Selling Your Business

Selling a business can be a stressful event.  Given the size of the asset – and likely it’s importance to your retirement – you can just imagine that there are going to be some white knuckle moments.  To reduce your anxiety level and increase your odds of success, here are five items to consider as you ramp up for a sale. Continue Reading…

bad_apple_bad_buysell_agreement

A bad buy-sell agreement and an $11million mistake…

Speaking of expensive litigation, a New Jersey case might really drive home that point.  In the Estate of Cohen v. Booth Computers, on appeal the court ruled that a long-ago drafted buy-sell continued to be the controlling document.  It cost the plaintiff $11 million.

In the Cohen case, the buysell provided for a fixed valuation definition:

“the full and true value of the Partnership is equal to its net worth plus the sum of FIFTY THOUSAND ($50,000.00) DOLLARS.  The term “net worth” has been determined to be net book value as shown on the most recent Partnership financial statement at the end of the month ending with or immediately preceding the date of valuation.”

The Fair Market Value (FMV) of the plaintiff’s interest was determined to be approximately $11,526,162.  Instead, the buy-sell entitled her to just $128,000.  As Matt Damon once said… how about them apples?

Don’t let a poorly drafted – or non-existant – buy sell cost you down the road

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Critical Valuation Considerations for a Buy-Sell Agreement

In any organization where there is more than one owner, the drafting of a buy-sell agreement is of paramount importance.  Even the strongest business relationships among partners can be tested by retirement, transition or some other form of transaction.

A buy-sell agreement sets the parameters for any potential transaction which may take place. It also provides valuable guidance for those inevitable real life situations. It is absolutely necessary in order to avoid potential litigation upon the departure of an owner, as is often the case the leaving owner believes that his shares are worth more than the remaining owners believe they are worth.

With that in mind, we’ll review a few items that we routinely encounter from a valuation standpoint.


Standard of Value

The two usual options with regards to Standard of Value are Fair Market Value (“FMV”) or Fair Value (“FV”).   The difference in value between the two can be staggering, especially for minority shareholders.

Fair Market Value, is typically defined as “the price at which the property would change hands between a willing buyer War Story: We worked on a valuation for a dissenting shareholder in which the document stated FMV but defined FMV similar to FV.  The ambiguity in the language drive significant cost and discontent for the parties involved. 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 a reasonable knowledge of the relevant facts.”

Under this standard, discounts are typically applied to minority interests for Lack of Control and Lack of Marketability.  Given that these discounts can oftentimes approach 50% of the pro rata value, minority shareholders unaware of this standard can often find themselves with an investment worth considerably less than anticipated.

In contrast to FMV, FV is often defined as the pro rata portion of the overall entity’s valuation without discounts.  Under the FV standard a minority interest would be worth considerably more than at FMV.

It’s imperative to be cognizant of the meaning of each standard when drafting the document, as imprecision at the drafting stage can often have drastic consequences.


Valuation Mechanism

In general there are three methods to address the valuation mechanism: use a formula, rely on structured negotiations, or use of an outside firm.

1. The Formula Approach

While the formula approach is often the most straight forward, it is also perhaps most prone to unintended consequences.   Post-drafting the make up of the business can change, the industry can change, and the economy can change.  Each of these items alone would have a material impact on the viability of the formula chosen.

As noted in the seminal Sunbelt case, valuation formulas can quickly lack context to current reality:

“There is no bright-line rule relating to the maximum length of time that may occur between an earlier transaction and a cash-out merger before the Court discounts the weight of the earlier transaction as evidence of fair value . . . I conclude that three years is far too wide a gap between the two events.”(1)

If a formula approach is used as an expedient, perhaps an annual visitation of the formula would at least safeguard against having an outdated formula.

2. Structured Negotiations

Structured negotiations often fall broadly into two categories – the annual pricing mechanism, and a put/call approach (often called a “shotgun” clause).   The former forces shareholders to annually agree on a value for the company.

While a laudable planning exercise, its unfortunately common that the valuation process goes the way of the annual meeting and corporate minutes (that is, never completed).

Further, absent an agreement on the valuation, there remains the need for another mechanism to ascertain value.

3. Third Party Valuation

The third party valuation, when performed by a qualified valuator, can be an expedient and accurate method to ascertain value.  A well drafted buy-sell agreement will help the valuator in developing value on the subject company.

In the case that parties dispute that value, or cannot agree on a valuation firm, it is often appropriate to insert of “average or three” clause or similar mechanism to avoid protracted disputes.


Funding the Transaction

Somewhat as an aside to the buy-sell agreement, and area that we often see neglected is funding the buy-sell.  In situations where a triggering event such as incapacitation or death of a shareholder trigger the buy-sell, companies often lack the means to complete the transaction mandated by the agreement.  Investigating insurance options early is in inexpensive way to fund what can ultimately become an expensive problem.


Conclusions

As with many things in life and in business, removing ambiguity early in the process often leads to less pain and expense down the road.  Shareholders often avoid the expense of drafting a formal shareholder agreement thinking “it will never happen to me” – but obviously it does.  Drafting documents that speak to, amongst other items, these key issues can save significant expense down the road.

1- See: Sunbelt Beverage Corp. Shareholder Litigation, Consol. C.A. No. 16089-CC, Chandler, C. (Del. Ch. Jan 5, 2010).


Lenders Speak: “Getting the Deal Done”

Great event this morning!  Thanks so much to Mark Moore and Adam Nalls of Access National Bank, as well as Bruno De Faria of M&T Bank, for providing some great insights into the lending market.   We tasked our panelists with discussing what they are seeing in the market in terms of acquisition finance, challenges that they typically see related to deals, and to share some tips and tricks on getting the deal through underwriting.

A few take-aways from the event: Continue Reading…

Stop Asking for Easy

If you’ve ever sat through a talk I’ve given or, as a business owner, sat with me one-on-one talking about exit planning, there is a 100% chance that you’ve heard me talk about how hard it is to get it done right.  And I don’t say that to be negative – I’m talking about hard things because we have to embrace the difficult in order to do great things. Continue Reading…

June EPI Meeting – How to Get More Transactions Financed

Business acquirers (and to some extent, advisors) are often surprised when lenders take a pass on an acquisition finance opportunity, with the underlying reasons remaining a mystery. In reality, the reason for the turn down can often be easily explained (and ideally, remedied). For instance, often, the bank simply does not finance the type of acquisition that the buyer is requesting.

The presenters in this session will explain what type of bank and financing is appropriate for which type of acquisition (commercial, asset based, SBA), and the current lending environment for each in the DC Market The panel will discuss how to properly package the loan that results in loan approval, how deal structure impacts the attractiveness of the deal, and other elements from the lenders’ perspective.

Please join us.  Register here.

Ritz-Carlton Tysons, 1700 Tysons Blvd, McLean, VA 22102

June, 21 2017

7:30am – 9:30am

Plan for Post Tax Proceeds

This won’t come as a surprise, but nearly every business owner who is approaching a sale is focused on realizing the highest possible price. What may come as a surprise though, is that few are focused on the right number. The question “how much can I get for the company?” should always be followed by “after taxes.”

There are a number of issues that are going to alter your post tax proceeds (which is why we always recommend embarking on an Exit Planning Process).  With an appraisal in hand, working with a qualified tax advisor is a great way to really drill down on how a transaction might look for you and affect your retirement.

So, what kind of tax are we talking about? Continue Reading…

Fraud Prevention Event – Executive Impersonation

Quantive would like to cordially invite you and a guest for a special evening of cocktails, food, and fun.

This event is the first of a series of educational/social gatherings that we will be hosting over the course of the year.  We have invited Lourdes Ortuso, Vice President with M&T Bank, to educate us with her presentation titled “Focus on Fraud: Executive Impersonation”.

This is an increasing trend in the corporate world and Lourdes’ talk will leave you informed and prepared to protect yourself and your business.  Please find the details below and you can RSVP directly to me.  We look forward to seeing you!

Date: 
Thursday, May 18th 2017

Time: 
6:30pm – 8:30pm

Location: 
Vinifera Wine Bar & Bistro
11750 Sunrise Valley Dr.
Reston, VA 20191

RSVP
Katie Snell or your Quantive POC

 

EPI DC Chapter – Join Us for Happy Hour

This month we’re switching things up a bit.  Instead of our usual monthly educational breakfast event, in May we’ll be hosting a social.  Please join us for cocktails and light hors d’oeuvres on May 24th at 5pm.  Our co-sponsor BNY Mellon Wealth Management is graciously hosting at Tysons Tower Rooftop Penthouse (7900 Tysons One Place).

RSVP Here.

 

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