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Generational Equity Experts Tell How to Find Hidden Value in Your Business

By Generational Equity

Sep 13, 2016, 03:00 et
Hidden Value Business

We have heard the term EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization). Many people believe that a multiple of this figure is the best way to determine the value of a business. Although this is certainly one method of business valuation, in order to obtain the optimal value for your business, it is wise to use a variety of valuation methods.

"The old Latin saying from the first Century, B.C. still holds true today," said Terry Mackin, Managing Director Mergers & Acquisitions with Generational Equity. "Everything is worth what its purchaser will pay for it."

"Understanding what the potential buyer values is one key to obtaining the best price for a business. A spreadsheet often doesn't tell the whole story," said Carl Doerksen, Director, Corporate Development with Generational Equity, a firm that specializes in helping business owners release the wealth of their business by providing merger, acquisition and strategic growth advisory services.

"There are numerous reasons that one potential buyer is willing to pay significantly more for a business than another," said Mackin.

"Identifying the underlying value of a business (often termed the off-balance sheet assets) is a key part of the pre-sale offering process that is often overlooked."

Here are some examples of hidden value (a.k.a. intangible assets):

  • Long-term favorable real estate leases or ownership – Sears is a good example of a firm that is struggling as a department store, but has extensive valuable real estate holdings.
  • Recurring revenue – long-term service contracts, vs. one-time deals, can add significant value to a business.
  • Strong customer relationships – the ability to maintain strong customer relationships by keeping key employees under contract or the owner involved can add significant deal value.
  • Overcoming high barriers to entry – an established business may already meet stiff regulatory requirements or may have already worked hard to obtain zoning that could cost a startup or new entrant time and significant expense.
  • Equipment that is already amortized – buying an existing factory may be a much better value than trying to start one from scratch especially if it requires new and expensive specialized equipment.
  • Key employees – the ability to immediately leverage key employees can be especially valuable in instances where skilled employees are in short supply or would take time and expensive to recruit and train.

"It takes specific expertise to identify and evaluate these assets and their value to different potential buyers," said Doerksen.

"Failure to take these steps and to cast a wide net to find buyers who will see this value can leave significant money on the table when selling a business or can lead to less favorable terms for the seller.

"For example, some buyers are willing to pay for an owners' involvement and for the technical expertise and customer relations that can help generate a continuing positive revenue stream after the sale."

About Generational Equity

Generational Equity, part of the Generational Group headquartered in Dallas, with over 200 professionals located throughout North America, helps business owners release the wealth of their business by providing merger, acquisition and strategic growth advisory services.

Our four-step approach features M&A education, financial analysis and reporting, sales documentation and deal-making. The team was recently recognized by M&A Advisor as Valuation Firm of the Year. For more, visit www.genequityco.com.

I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.
Jay Dinnison, Owner of Sharpe Mixers
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.
Bryan D. Horn, Owner, Over Under Clothing
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Ralph Noblin, President of Noblin & Associates
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Karen S. Williams, CFO, BW Manufacturing
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Robert Evans, President and CEO of Mealtracker Dietary Software
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”
Karen S. Williams, CFO, BW Manufacturing
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Robert Evans, President and CEO of Mealtracker Dietary Software
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Bil MacLeslie, CEO, ipHouse
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.
Pete L.
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Michael J Polarek, President, Paragon Packaging
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Shenille Engelhart, Owner – CLS Technology
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!
Eric Erlandson, Owner, Action Fastenings, Inc.
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Jay Dinnison, Owner of Sharpe Mixers
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Andy Graham, Vice President, Modern Heating & Plumbing
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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Michael J Polarek, President, Paragon Packaging
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.
Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Terry D. Wickman, President, Keytroller
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.
Larry Moore, Owner, A Company Portable Restrooms
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.
Andy Graham, Vice President, Modern Heating & Plumbing
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.
Terry D. Wickman, President, Keytroller