Michael Levison

maximizing value: More Than EBITDA

If you’re looking to sell your company focussing solely on profit could result in more than a subpar value. Even though financial success is crucial but smart buyers look at various factors which influence return and risk. To maximize the value of your business and to command a premium valuation, you must be able to identify eight important value factors. This article will look at these value drivers and offer specific steps you can do to ensure that each one is strong. 1. Create a Culture of Resilience for the Company Why it’s Important: A well-established culture can unite your team, ensuring consistency efficiency and stability in operations. Two things that buyers as well as corporate brokers appreciate greatly. Steps to Enhance: Businesses that have strong, mission-driven cultures typically experience better retention of their employees as well as more seamless transitions after sales. 2. Expand Management Broadness Why it is Important: Buyers assess whether your company is dependent on its proprietor. A team that is able to run operations on its own increases the value of your business and lowers the perceived risk. Steps to improve: The dependence on the business owner is likely to be the biggest negative impact on the value of an enterprise for small companies. 3. Ensure Value Proposition Durability Why it is Important: A distinct and lasting competitive advantage, also known as a “moat,” signals long-term viability, which is vital for those seeking a substantial return on their investment. Steps to Enhance: Even the most commoditized of industries can stand out by providing additional services, for example maintenance programs or customer education. 4. Develop a Recurring Revenue Model What’s the point? Regular, predictable income streams reduce risk for buyers and significantly increase the value of multiples. Steps to Enhance: For instance, SaaS companies often achieve valuations that are 3-5 times higher than the revenue counterparts of traditional industries due to regular revenue streams and high margins. 5. Achieve Operational Scalability What is it? Buyers are looking for companies capable of scaling efficiently without having a significant cost increase. Operational scalability is essential to increasing the performance of a business as well as attracting customers. Steps to Enhance: The ability to show the capacity to expand without massive capital expenditure, is attracted to buyers. In contrast, a company that is operating at capacity and requires large investments to sustain expansion, will typically be valued at low end of range. 6. Strengthen and Diversity Customer Relationships What is it about: A loyal and varied customer base is a sign of stability and potential for growth. Buyers appreciate businesses with high satisfaction and retention metrics. Steps to improve: Companies that have highly satisfied customers usually have faster sales processes and better valuations. 7. Enhance Financial Management What’s the significance? Transparent, clean financials are a boon for buyers and businesses brokers by making the selling process faster and boosting confidence. Steps to Enhance: The consistency of well-documented financial reports will cut the time for due diligence by 50%, making the company more appealing to buyers…and increasing the speed of sales process. 8. Establish Strong Governance Why it is Important: Buyers expect clear guidelines for governance that are documented to mitigate risks, especially in industries that are regulated. Governance issues can slow deals or decrease the value of a company. Steps to Enhance: This is a subject that is often ignored by smaller businesses. Compliance issues are often a hassle that takes quite a while to clear up. This isn’t something you’d like to have to tackle in the last minute to tidy up. To maximize business value , focus on these eight drivers of success. Whether you’re working with a business broker or planning to sell your business independently, improving these areas will make your company more attractive to buyers, reduce risks, and secure the best possible valuation. By aligning your efforts with what buyers truly value, you ensure your business achieves its full potential in the marketplace.

Rollover Equity 101: Turning Today’s Sale into Tomorrow’s Opportunity

In this podcast, Mike Levison delves into the intricacies of rollover equity – a mechanism used in mergers and acquisitions where the seller retains some ownership in the enterprise post-sale, allowing them to benefit from its future growth. It discusses rollover equity as an advantageous situation for both sellers and buyers, as it aligns their goals while paving the way for shared success. However, the podcast also highlights the potential downsides such as reduced upfront cash for sellers and uncertainties about future valuations. Additionally, it examines the tax implications that come with rollover equity – how it may defer certain capital gains taxes and why its tax treatment should be thoroughly reviewed with tax advisors. Lastly, Levison underscores the importance of understanding one’s needs from a transaction to structure the decision on equity retention effectively.

The Double Dip Exit: How Rollover Equity can Make you more

The rollover equity method is commonly employed during mergers and acquisitions, where the seller holds a percentage of their stake in the business following the sale. Instead of receiving the complete amount of the purchase in cash, the seller invests a portion of the profits into the new entity, which allows them to take part in the future growth of the company and financial success. The method is great for a business owner who wants to remove some chips from the table but still would like to be active and be a part of the future successes. What is rollover equity? How Does It Function? For illustration, take this example: A business owner wants to sell their business in a deal with a private equity company for a sum of $10 million. Instead of taking the whole amount as cash payment, the owners choose to roll the $3 million in equity to the new company created with the purchaser. They now hold 30 percent of restructuring business. If the company expands and is then sold at a greater price, the seller will share in the profits. This method creates a partnership with the buyer and seller. buyer, where both are motivated to increase the value of the business over time. The Making of a Win-Win Equity rollovers can benefit buyers and sellers since it helps them achieve their goals and assures that they are both successful. Rewards and Risikens Benefits Risques Tax Impacts The rollover equity may also offer substantial tax advantages. In the event of rolling over a small portion of equity, owners are able to defer certain capital gain tax. While they are not taxed for all the proceeds of the sale in the beginning, taxes on the rolled-over portion are generally delayed until the ownership stake of the new owner is sold later. However, the tax treatment for each jurisdiction is different and must be examined with tax professionals. The most important considerations for sellers In deciding whether to transfer equity, sellers must consider: Equity rollovers can be an effective strategy for those who are convinced of the growth potential of their company and wish to keep an interest in its growth. If you are aware of the advantages and potential risks, tax implications, and structuring issues to make educated choices and increase the value of your transactions.

The Double Dip Exit: How Equity from Rollovers Can Make you Additional

Rollover equity is a method commonly employed during mergers and acquisitions. It is a method by which the seller holds a percentage of their ownership stake in the business following the sale. Instead of receiving the complete amount of the purchase in cash, the seller invests a portion of the profits into the new entity, which allows them to take part in the future growth of the company and profit. This strategy is perfect for those who want to get some chips off the table but would like to be active and be a part of the future successes. What is rollover equity? How Does It Do Its Work? To illustrate, think about this example: A business owner sells their business in a deal with a private equity company for a sum of $10 million. Instead of receiving the full amount with cash, they decide to roll the $3 million to equity in the new company created with the purchaser. They now hold 70% of restructuring business. If the business grows and is then sold at a greater price, the seller gets a share of the profits. This method creates a partnership that is between both the vendor and buyer, where both are motivated to enhance the long-term value of the company. Making A Win-Win Equity rollovers can benefit buyers and sellers, as it is a way to align their goals and assure that they are both successful. Advantages as well as Risks Benefits Dangers Tax Impacts The rollover equity may also offer substantial tax advantages. In the event of rolling over a small portion of equity, investors can defer certain capital gains tax. While they are not taxed for the whole transaction, upfront tax on the rolled-over portion is generally delayed until the ownership stake that was acquired is sold in the near future. However, the precise tax treatment for each jurisdiction is different and must be discussed with tax experts. The most important considerations for sellers In deciding whether it is appropriate to carry over equity, sellers should consider: Equity rollovers can be an effective option for sellers who are confident in the growth potential of their company and wish to keep an interest in its growth. If you are aware of the advantages and taxes, risks, structuring issues, and structuring considerations, you can make informed choices and increase the value of your transactions.

The Double Dip Exit How Equity from Rollovers Can Bring Your Business Additional

Rollover equity is a method commonly employed when a merger or acquisition occurs, where the seller holds a percentage of their stake in the company following the sale. In lieu of getting the entire cost of purchase the seller invests a portion of the profits into the newly formed entity, which allows them to take part in the future growth of the business and profit. The method is great for a business owner who wants to remove some chips from the table, but would like to be engaged and contribute to future successes. What is Rollover Equity? How Does It Function? To illustrate, think about this example: A business owner wants to sell their business in a deal with a private equity company for a sum of $10 million. Instead of receiving the full amount as cash payment, the owners decide to roll the $3 million to equity in the new entity created through the purchase. They now hold 70% of newly restructured business. If the business grows and is then sold at a greater price the seller will share in the profits. This method creates a partnership that is between both the vendor and buyer, where both are motivated to enhance the long-term value of the company. The Making of a Win-Win Equity rollovers can benefit buyers and sellers as it is a way to align their goals and assures the success of both parties. To Sellers: It enables them to remain invested in the business they created and could earn a better ROI if the business is eventually sold. It also shows their trust of the buyers’ plans to the company. To Buyers: It makes sure that the seller stays dedicated to the growth of the business and facilitates a smooth transition of ownership by leveraging the experience and expertise of the seller as well as relationships. It also decreases how much capital needed to be committed at the beginning of the transaction. Advantages as well as Risks Benefits Participation in the future Growth Sellers may get additional income when the business grows and is transferred to a buyer with a higher price. Affiliation of Interests Buyers get an investment partner who stays committed to the success of the company. Dangers Deferred Payment Sellers get less cash in advance and this could be a problem if immediate liquidity is required. Indeterminate Future Value The final return on equity rollovers is contingent on the future performance of the business which might not always be in line with expectations. Implications for Tax The rollover equity may also offer substantial tax advantages. In the event of rolling over a small portion of equity owners can defer certain capital gains tax. While they are not taxed for the whole transaction upfront tax on the rolled-over portion are usually delayed until the ownership stake that was acquired is sold later. However the precise tax treatment of a jurisdiction varies and must be examined with tax professionals. Important Considerations for Sellers In deciding whether to transfer equity sellers should consider: Percentage of Equity How much of the sales proceeds should be invested? Intentionally retaining too much equity could expose sellers to risk, and the transfer of too little equity could limit the amount of future gains. Valuation Sellers have to make sure the value of the rolled-over capital is reasonable and aligns with market standards.Buyer’s track record Review the buyer’s capacity to grow the business and to make an exit that is profitable. Structure The devil always lies in the details. Financial buyers usually attempt to structure these agreements to ensure that their equity receives an advantage in return prior to other equity holders are involved. Do not do this if it is possible. I’ve seen it go badly many times. Legal Security Minority ownership within restructuring a company can pose risks. Sellers must ensure that proper legally binding agreements in order to protect their interests. Equity rollovers can be an effective option for those who are convinced of the potential for growth of their business and wish to keep the company’s success. If you are aware of the advantages and taxes, risks and structuring issues to make educated decisions that will increase the value of your transactions.

The Double-Dip Exit: How Rollover Equity Can Earn You More

Rollover equity is a mechanism often used in mergers and acquisitions where a seller retains a portion of their ownership in the business after the sale. Instead of receiving the full purchase price in cash, the seller reinvests part of the proceeds into the newly structured entity, allowing them to participate in the company’s future growth and profitability. The approach is ideal for an owner that wants to take some chips off the table but also wants to stay involved and participate in future success. How Does Rollover Equity Work? To illustrate, consider this example: A business owner is selling their company to a private equity firm for $10 million. Rather than taking the entire payment in cash, they agree to roll over $3 million into equity in the new company formed by the buyer. This means they now own 30% of the restructured business. If the company grows and is sold again at a higher valuation, the seller shares in the upside. This approach creates a partnership dynamic between the seller and the buyer, where both parties are incentivized to maximize the business’s long-term value. Creating A Win-Win Rollover equity can benefit both sellers and buyers, as it aligns their goals and ensures shared success. Benefits and Risks Benefits Risks Tax Implications Rollover equity can also have significant tax benefits. By rolling over a portion of their equity, sellers may defer certain capital gains taxes. Instead of being taxed on the entire sale upfront, taxes on the rolled-over portion are typically deferred until the new ownership stake is sold in the future. However, the exact tax treatment varies by jurisdiction and should be carefully reviewed with tax advisors. Key Considerations for Sellers When deciding whether to roll over equity, sellers should evaluate: Rollover equity can be a powerful strategy for sellers who believe in their company’s growth potential and want to maintain a stake in its success. By understanding the benefits, risks, tax implications, and structuring considerations, you can make informed decisions and maximize the value of their transactions. Start By Knowing What You Really Need In A Sale Deciding whether to retain equity when selling your business, starts with knowing what you really need to net in the transaction to fund your desired lifestyle.  It is probably more than you think.  To properly calculate this number for your situation, take our Freedom Score assessment by clicking here.

Article - Why a competitive process is important

Why a Competitive Process Is Important When Selling Your Business

When it comes to selling your business, one of the biggest mistakes you can make is going with the first buyer who comes along. Running a competitive sales process is crucial to maximizing your financial outcome and reducing risk. Here’s how and why it works. What Is a Competitive Sales Process? Simply coordinating inbound interest from buyers isn’t enough. A true competitive process means actively engaging multiple qualified buyers, assessing their ability to close, and leveraging their bids to achieve the best deal possible. A solid competitive process has several key elements: Why Competition Matters 1. Higher Valuation Through DemandJust like in any marketplace, more demand leads to higher prices. Consider this: We once worked with a software company that received initial offers ranging from 2x to 5x revenue. Only by creating competition did we get the best outcome. Actionable Tip: Don’t settle. Always test the market, even if a buyer promises a “quick and easy” deal. A higher bid might be just around the corner. 2. Better Transaction StructureBuyers often propose deferred payments or earnouts, where a portion of the price is paid later if certain targets are met. This setup is risky for sellers. Imagine being unable to make key business decisions because a buyer now controls the company’s direction and you carrying the risk of those decisions.  Having multiple competitive bids gives you leverage to negotiate the terms you want. Actionable Tip: Use competing bids to push for a clean cash deal or better terms. If one buyer insists on an earnout, another may offer a simpler structure. 3. Shorter TimelinesYou might think more buyers would slow the process, but it’s the opposite. Competition motivates buyers to act quickly. Without competition, a buyer may drag out diligence, waiting for you to feel pressured or tired of the process.  In a recent transaction, a strategic buyer tried to extend the diligence period, hoping to renegotiate terms later. Because we had a competitive process, we secured a faster deal with a more committed buyer. Actionable Tip: Set a clear timeline and stick to it. Ensure buyers know there are other parties involved and that delaying the process could cost them the deal. Avoiding Buyer Tactics That Reduce Your Leverage Buyers often try to control the timeline and terms by pushing you to sign an exclusivity agreement. This means you can’t talk to other buyers for 60-120 days while they conduct diligence. A prospective buyer benefits from this in a couple of ways:  Actionable Tip: Make buyers earn exclusivity. Limit exclusivity periods to 15-30 days, or even better, negotiate terms upfront before granting it. Minimizing Closing Risk If a buyer backs out late in the process, you lose time and momentum. This risk is particularly high with financial buyers who have multiple opportunities at any given time. Actionable Tip: Always have backup buyers. In one deal we managed, a financial buyer pulled out when their funding fell through. Because we had a second bidder lined up, we closed quickly with minimal disruption. Next Steps: How to Run a Competitive Process Running a competitive process can be a lot of work, but it’s worth it. Don’t leave money on the table—let the market show you what your business is truly worth. Ready to Take the Next Step? Spend 15 minutes completing our free online assessment of your business and we will provide you with a free report showing how your organization scores in each of the eight areas that drives enterprise value. Click here to get your free value builder score.

Podcast - TechSavvy Exit

Tax-Savvy Exits: Key Strategies to Boost Business Value and Avoid Costly Pitfalls

In this episode of Growth & Exit Digest, host Mike Levison discusses the importance of proper tax strategies for increasing business value and facilitating a smooth exit. He emphasizes the importance of pre-sale tax planning to optimize business valuation and ensuring favorable tax outcomes. Mike then dives into the critical decision of choosing between asset and stock sales, using a case study to illustrate the potential implications on tax liability. He provides key insights on the use of installment sales, gifting shares, and timing the sale to coincide with favorable tax conditions. The podcast also covers the complexities of multi-state and international tax rules and the importance of post-sale strategy in managing capital gains taxes and reinvestment.

Thinking About Selling Your Business? Smart and Early Planning Can Make a BIG Difference

When it comes to selling a business owners often overlook or underestimate the complexity of taxes involved, leading to unexpected liabilities. Implementing effective tax strategies not only reduces liabilities but also increases business value and ensures a smoother exit. Here are key considerations to help you plan effectively and increase profitability. 1. Prioritize Pre-Sale Planning Pre-sale tax planning is crucial for boosting business valuation and optimizing tax outcomes. Begin by reviewing your corporate structure, understanding the tax implications of asset vs. stock sales, and aligning family and estate planning goals with your exit strategy. For instance, transitioning a C-Corp to an S-Corp can reduce taxes by eliminating double taxation, but such changes should be made years before the sale to avoid unintended consequences. Action Step: Engage a tax advisor with M&A experience early in your exit planning process. They can recommend entity structures, set up tax-efficient retirement plans, or reorganize to qualify for lower capital gains rates. 2. Choose the Right Sale Structure: Stock vs. Asset Sale One of the most critical choices in a business sale is whether to pursue an asset sale or stock sale. Buyers often prefer asset sales for tax benefits and liability protections, while sellers typically favor stock sales to capitalize on lower capital gains tax rates. Understanding these options is essential to increase business value and minimize taxes. Case Study: A manufacturing business owner opted for an asset sale to attract a larger buyer. While this increased the sale price, it resulted in higher ordinary income taxes. Proactive planning could have enabled deferral of some taxes through installment sales or structuring a consulting agreement. 3. Utilize Installment Sales to Lower Tax Liability If structured effectively, installment sales allow you to spread income over several years, potentially lowering your overall tax burden. This strategy is particularly useful for high-value businesses, where receiving the full sale price in a single year could push you into a higher tax bracket. Action Step: Discuss with your tax advisor whether an installment sale aligns with your exit planning goals. This is especially valuable for businesses in industries with high-value transactions like specialized manufacturing or services. 4. Leverage Gifting Shares to Reduce Estate Taxes For business owners planning a family succession, gifting shares in advance can reduce estate taxes and facilitate a smoother transition. Gifting shares to children or establishing a family trust can lower the taxable value of your estate, saving on taxes in the long run. Common Pitfall: Failing to align estate planning with your tax strategy can result in a substantial tax bill even after selling your business. Address this early in the process. 5. Time Your Sale for Optimal Tax Rates Market conditions are important, but timing your sale to coincide with favorable capital gains tax rates or regulations can significantly increase your net proceeds. Stay informed about potential changes in tax laws to adjust your strategy accordingly. Action Step: Maintain flexibility in your timeline and consult with your advisor to monitor regulatory changes. This preparedness can make a big difference in post-tax profits. 6. Address Cross-Border and Multi-State Tax Issues If your business operates across multiple states or countries, planning for multi-state and international tax rules is critical to increasing business value. Different states may impose varying tax rates, and cross-border transactions can lead to complex federal and international tax regulations. Recommendation: Map out your business’s nexus and consult with a tax expert experienced in multi-state and cross-border taxation to avoid surprises that could impact your sale proceeds. 7. Develop a Post-Sale Strategy to Maximize Profits Managing capital gains taxes and reinvesting proceeds are vital steps after selling a business. Consider options like Opportunity Zone investments or 1031 exchanges to defer taxes and reinvest profits in new ventures or real estate. By following these strategies, you can maximize your profits, reduce your tax burden, and avoid common pitfalls. Smart tax planning not only enhances business valuation but also positions you for a more successful and profitable exit. Take the Next Step Spend 15 minutes completing our free online assessment of your business and we will provide you with a free report showing how your organization scores in each of the eight areas that drives enterprise value. Click here to complete the free value builder score assessment.

Maximizing Business Value: Onboarding Strategies To Boost Performance

The episode of the Growth & Exit Digest podcast, hosted by Mike, focuses on onboarding strategies aimed at maximizing business value for small and medium enterprises. Mike emphasizes the importance of pre-boarding, stressing that preparing for a new recruit’s arrival and setting expectations can help foster engagement. He suggests integrating new hires by providing a structured first day, effective communication about the company’s mission and values, and comprehensive training. Mike further recommends a buddy system and goal setting to drive engagement and performance. He also highlights the significance of a positive work environment and regular feedback sessions. Mike points out that a good onboarding process can boost your business’s operational efficiency, retention rates, and overall valuation, thereby improving potential exit strategies.