Hardwood Floors August/September 2018

Value Drivers (Continued)

COMPANY A’S CASH FLOW

$ MILLIONS 6 5 4 3 2 1

2016 2017 2018 2019 2020 YEARS

COMPANY B’S CASH FLOW

$ MILLIONS 6 5 4 3 2 1

2016 2017 2018 2019 2020 YEARS

drivers were not dreamed up by a business school professor, but are what professional, sophisticated buyers say they seek in closely held businesses. Concentrating on developing and enhancing each value driver will position you to get a premium price for your business. Jonathan Benner is a Certified Financial Planner™ with LPL Financial in Chesterfield, Missouri. He and his team have the unique capabilities to help business owners with the single-most critically important issue impacting their lives – how to exit their business most effectively. He can be reached at jonathan. benner@lpl.com.

to increase a er they buy the company. ink like a buyer. Which company would you rather buy? Notice in the chart above that the total cash ow for each company is the same, $6 million over three years (2016- 2018). Yet company B has a be er story to tell because its immediate past and present cash ow have improved and continue to improve. It is important, especially in the year or so preceding the sale of the business, that cash ow is substantial and on an upswing. Conclusion Whether a buyer will pay a premium price for a business depends, in large part, upon the e orts of the owner to adopt and implement the value drivers described in this article. ese value

Effective financial controls Financial controls are not only a critical element of business management, but also safeguard a company’s assets. Most importantly, however, e ective nancial controls support a claim that a company is consistently pro table. When you decide to transition your business, the buyer will perform some level of nancial due diligence. If the buyer’s auditors are not completely comfortable when reviewing your company’s past nancial performance, you have no deal or, at best, a reduced value for your company. Stable & increasing cash flow Buyers purchase cash ow, and they pay top dollar for cash ow that they expect

28 hardwood floors www.hardwoodfloorsmag.com