business couch, open business discussions!

business support initiative  our approach  |  articles & resources  |  valuator™ & evaluator™  |  reach us
April 2012 Edition   

Founder's Monthly Message



In the last two weeks alone, I was referred at least two businesses, which were listed for sale and personally know other ones that will follow suit.

Interestingly enough, all business are well established, successful by the same definitions that we discussed in the
March 2012 edition of business couch. Yet, ironically, in all cases, the main reason for selling decision is the inability in transferring the business to the next generation.

Specifically, in all cases, either the next generation is not interested in participating with the management of the business or are not groomed to do so.

In any case, although selling a business may be considered an inevitable phase in the overall business journey, the added common inherent implications among all cases are twofold:

a- Uncertainty regarding the right timing for exiting the business
b- Unrealistic perception about the actual value of the business

At the same that both above matters have been discussed previously and numerously, it seems that more than ever they are required to be dissected and
emphasized upon.

During this exercise, it will be necessary to define and review the value of the Succession Planning, its correlation to the Business Exit Strategy and develop a clear understanding regarding the best practices of Succession Planning and Business Exit.

Furthermore, it will be necessary to examine the relation between the uncertainty regarding the right timing for exiting the business and unrealistic perception about the actual value of the business and strive to find a pragmatic approach to the issue of exiting a business before it is too late.

So, I would certainly hope that the contents of this article will be of some value in developing a coherent Succession Planning or Exit Strategy, determining the appropriate exit time and an eye-opener related to the actual value of a business.
 
Sincerely,

Rahmat Ushaksaraei

t: 416 - 275 - 5543
e:
Rahmat.Ushaksaraei@accrete.ca
w: business support initiative



It is with great pleasure to announce the release of the book, The HIM & HER, authored by Rahmat Ushaksaraei.

Intelligence and Emotion are the two inseparable building blocks and attributes of every human being. The revolutionary Human Intelligence Management (HIM) and Human Emotion Realization (HER) methodologies unlock the mystery of human beings and introduce innovative solutions, which surpass the traditional and obsolete methodologies that are being practiced still today.

For further details, please click on the below image:
The HIM & HER Book



If one could grant you three business wishes, what would they be?

1- In an ever evolving and competitive market, what are the primary short/long term objectives and their related challenges in your business?
2- Nationally and/or internationally, how would you reach the potential market and establish business alliance, and how would you maintain the business balance and ensure its competitiveness?
3- Considering the Book Value versus Market Value Reality Check, what is the true value of your business in the market?
4- To exit your business in a foreseen or an unforeseen future, transfer it to someone, or simply limit your scope of involvement, when is the right time to start planning, where would you start from, and what are the critical elements that you would be required to consider?

As part of a mandate in supporting small and mid-size businesses, we are pleased to furnish the key decision maker(s) of a business with an opportunity for a fully subsidized, one-on-one, private and confidential business chat. Interested? click here



on-site seminar & training in place of your business

Disregard of the nature of a business, its three building blocks are People, Process and Bi-directional Information flow between People and Process. Also, these building blocks impact the three fundamentals of CSA (Cash/Finance - Sales/Marketing - Administration) within a business.

So, as key decision maker(s) of a business, have you ever wondered that despite covering all business angles why there are cases, which would get out of control?

Contact us for on-site tailored business best practices training & seminar:

click here to reach us


Succession, Business Exit and Actual Financial Value of a Business!

Experience has shown that majority of small and mid-size businesses have a misconception about Succession Planning and Business Exit Strategy, avoid discussing them as much as possible until the arrival of a mythical Right Time and in majority of cases are forced to consider them, when unfortunately it is too late.

At this mythical Right Time, although it would be absolutely acceptable, if reacted efficiently and adequately, the unfortunate common story among businesses is rushing through the matter and the challenge in addressing all necessary issues on hand. As a result, commonly, inherent potentials of a business is undervalued and the inevitable financial impacts on the business will be enormous.

In essence, the practiced business model, which supports this approach would not view either Succession Planning or Exit Strategy as a dynamic and interlinked component of a business road map to success. On the contrary, these elements are merely viewed as eventual, isolated, and unfortunate business milestones, which reaching them are prolonged and delayed as much as possible.

To explore the phenomena of Succession Planning and Business Exit Strategy and their importance further, let us dwell on the definition of these terms:

As their names suggest, they are plans and strategies. Similar to any standard plan or strategy, they are comprised of sequential, pragmatic and logical events with a coherent and attainable overall scope, initial starting point, milestones, dynamic quality check points and loops, phase closures and time-based achievable goals. 

Also, similar to any plan, Succession Planning and Exit Strategy may be of either reactive or proactive nature. Also, as one may appreciate, the degree of their effectiveness in either case is totally different. In a reactive mode, any plan is trailing the events that have either occurred or have been occurring. Therefore, it is continually striving to catch up with the events and control their impacts. On the contrary, in a proactive mode, by logically anticipating them, the plan is preceding the events, which are still to happen.

Although in majority of cases they are treated as isolated avoidable business entities, in reality, they are intertwined and extended elements of a dynamic Business Plan and are required to be revisited, reviewed and modified as often as necessary in order to be realistic portrayals of a business during its lifespan.

On a more positive note, among minority of successful small and mid-size business entities, dealing with Succession Planning and Exit Strategy is an intricate, parallel, pragmatic and overlapping components of a business and they start at the time of drafting a business plan or immediately after the business start-up.

To praise this business approach, experience after experience has proven that the Right Time for initiating Succession Planning and/or Business Exit Strategy is indeed at the time of preparing a business plan for a business start-up. If omitted, an accelerated approach is needed to be implemented to compensate for the lost time:

Typical Succession Pplaning & Exit Strategy Proper Succession Pplaning & Exit Strategy
Typical Succession Planing & Exit Strategy Proper Succession Planing & Exit Strategy

On a different note, often faced with the mind-boggling questions about the Actual value of a business at the time of exiting it, the typical response of a key decision maker is an overvalued and inadequately marked up number.

The presented justification behind this action is the invested personal time and financial resources in growing the business. Although both parameters are needed to be valued, in determining the true value of a business, one is dealing with the phenomenon of Book Value of a business versus its Market Value. Pictorially, the immediate difference between these two elements are:
Now, let us briefly explore the nature of Book Value and  Market Value and their sources:

Undoubtedly, where the Pre-Tax Profit, i.e. the Hard Earned Cash of a business is invested, is a critical element in determining its health. This issue is due to the fact that after introduction of the Capital Gain in Canada in the 70s, the common practice has become to either distribute the pre-tax profit as bonus or continually reinvest it in business to take advantage of tax sheltering initiative.

Naturally, although paying bonus is an incentive for maintaining existing investors and/or attracting new ones, and reinvestment in business is an excellent idea, how these financial activities are funded is a make or break factor in every business.

To examine these issues further, we need to consider the following questions:

a- Considering the amount of tax deducted from pre-tax profit, would it be truly considered as a financially coherent decision, if it is distributed as bonus?
b- In case of reinvestment of 
pre-tax profit in a business, would it truly increase the Market Value of business or merely inflate its Book Value?
c- Would it be logical to reinvest the Hard Earned Cash in the business or would it be more beneficial to raise business investment funds against the existing 
pre-tax profit from other external sources such as financial institutes and independent investors?

Experience has repeatedly shown that dominant perception among small and mid-size business owners regarding tax sheltering of the pre-tax profit is limited to reinvesting it into the business. As number of years in operation increases, commonly, this financial practice merely leads to business Book Value Inflation. Simultaneously, within the same operation years, business Market Value, i.e. its true value, may remain on a very moderate growth path and almost flat. Moreover, reinvestment entails purchasing of various commodities inside/outside of business functional parameters and subsequently increasing business assets. Frequently, the omitted logical fact is that, over the years, value of these assets are to be intentionally depreciated to maintain the tax shelter advantage and therefore they are considered illiquidable. Consequently, the forgotten reality is that at any given point over life span of such business, its True Market Value is much less than what it is auctioned for.

Normally, a common question is that why such issue may be deemed important, as long as such business remains in operation?

The response lends itself to essential notion of starting a business in the first place; i.e. Generating Profit, which translates into Increasing its True Market Value in the financial term. Furthermore, specifically related to our topic of discussion, the importance of this critical element is entwined with the question that at the time of exiting the business, how will one gets his/her capital out of it?

Unfortunately, negative side effect of above mentioned common practice escalates to a point where, once again, due to capital being locked in with tax sheltering activities, not only its release is limited, but also its value will be insignificant; almost at zero.
 
Now, considering the above macro level discussion about Succession Planning, Business Exit and Actual Value of a Business:

- Would you have a Succession Planning or Business Exit strategy in place?
- How often are you reviewing your
Succession Planning or Business Exit strategy?

- What is the Book Value of your Business?
- What is the Actual Market Value of your Business?

If in doubt, contact me directly and let's have a business chat!


About the author: Rahmat Ushaksaraei is an Accredited Associate of the Institute for Independent Business (IIB), Founder of GeBTL, Global executive Business & Trade Links, the only global top level executives' business platform, Founder of Bio Wood Pellet, representing the North American producers of the wood pellet in the global market, President of the accrete, The Business Excellence Realization , an author, presenter, Professional Engineer (P.Eng.), Project Management Professional (PMP), renowned expert in Concept, Project, Process, Quality and Communication Management,  business executive and leadership coach to large corporations, business mentor and advisor to small and mid-size businesses, pioneer of Diamond Total Management (DTM)business excellence model and Human Intelligence Management (HIM)and Human Emotion Realization (HER)methodologies and architect of the valuator™ and evaluator™ business evaluation tools for small and mid-size businesses. Rahmat Ushaksaraei may be reached at: Rahmat.Ushaksaraei@accrete.ca




How would I know the strengths and weaknesses in my business?

valuator™ and evaluator™

- As a key decision maker of a business, have you ever wondered that why despite your personal business vision, mentoring of the others at every possible step of the way and even managing some of the related business tasks to the smallest details on your own, it seems that there is always something, which prevents you from reaching the desired result?!

- Did you ever wish that there was something, which would point out the exact problems to you confidentially, recommend some of the possible solutions privately and allow you to deal with the issues on your term and at your leisure?!

Based on the proprietary principle of People-Process-Information™ methodology, valuator™ and evaluator™, are simple, to the point, pragmatic, unsurpassed and revolutionary 17-questions business evaluation tools that allow a key decision maker to conduct an automatic macro level analysis of a business of any nature at his/her leisure. For further information, please click on the image below:

People-Process-Information methodology has been developed by Rahmat Ushaksaraei - All Rights Reserved.
valuator & evaluator business evaluation tools have been architected by 
Rahmat Ushaksaraei - All Rights Reserved.
Your privacy is our main objective. Should you wish not to receive further information, please click here to unsubscribe.
© business couch - All Rights Reserved.