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IBR panel covers value of planning business transitions

The panel (l-r): Jeanine Barkan of PoleStar Succession & Exit Strategists, Kevin Bates of The Anderson Group at UBS Financial, Cory Jakobson of Columbia Bank, Trevin Rasmussen of The Bristol Group, Randy Siddoway of PoleStar Succession & Exit Strategists and Peter Smith of Smith + Malek. Photo by Rebecca Palmer

Failing to plan is planning to fail. That was the message of the IBR’s Business Transitions forum, an experts series intended to help business owners who are planning to sell their companies, as well as people who are considering owning a business themselves.

More than 50 people attended the first part of the two-part forum, which was held Sept. 10 at Boise Centre West.

Members of the panel noted a flurry of statistics around business sales, particularly in Idaho. For example, Idaho has about 15,000 businesses, said Trevin Rasmussen, a business broker with Bristol Group, in Boise. However, some of them just aren’t saleable, he said. In fact, two out of three businesses put up for sale don’t sell, said moderator Jeff Sayer, managing partner with Rectify Partners, which provides executive resources for midmarket companies in the Intermountain West.

A business exit is inevitable 

What helps is for business owners to have a plan for a business sale from the beginning, said Peter Smith, an attorney with Smith+Malek. That way, the owner always has the end goal in mind when making business decisions, he said.

On the other hand, even business owners who don’t intend to sell the business should be prepared.

“It’s inevitable. You will exit the business at some point,” said Jeanine Barkan, a certified valuation analyst with PoleStar Entrepreneurial Group, based in Meridian. As many as 50% of business exits are involuntary, warned Randy Siddoway, a certified public accountant, also with PoleStar.

Kevin Bates, financial advisor for UBS, said these involuntary exists are typically caused by one of the “five Ds” — “death, disability, divorce, disagreement and distress.”

Preparing for an exit, whether voluntary or involuntary, should ideally start as long as three years before a sale is planned, Barkan said. A number of panel members stressed the importance of good books and records to help support the valuation of the business. For example, business owners who have worked to lower business income to help reduce taxes should remember what effect that will have on the value of their business when they try to sell, she said. Country club memberships and Costco trips as business expenses can add up, warned Bates.

Calculating valuation

The discussion was moderated by Jeff Sayer of Rectify Partners. Photo by Rebecca Palmer

Valuation is an important part of selling a business, whether it’s internally to an employee or externally to an outside buyer. A company is worth only what someone is willing to pay for it, Barkan said. Factors considered for determining valuation include whether the cash flow is predictable, as well as transferable, Bates said.

Companies that are too dependent on the owner’s business relationships with suppliers and customers can be hard to sell, Siddoway said. Other factors include a small supply chain, intellectual property that doesn’t come with the business and having too much of the business dependent on a small number of customers, he said. A single customer responsible for more than 10% of revenues is a bad sign, and one responsible for more than half the revenues is a red flag, he said.

In addition, business owners need to surround themselves with a team of experts to help them deal with the myriad facets of a business transition. In particular, business owners need to be willing to listen to hard truths and not surround themselves with “yes men,” said Cory Jakobson, senior vice president-commercial team leader/commercial loan officer for Columbia Bank. Many business owners view their businesses as their children, and don’t always take well to criticism of them, he said.

Finally, it’s important to be a flexible and motivated seller, Rasmussen said. This could include being willing to help finance the sale. In fact, being unwilling to provide financing sends a negative message, he said.

The second part of the event, with a more detailed presentation of business transition issues, will be held on Oct. 8, also at Boise Centre West, at 3:30 p.m. Find registration information here.

About Sharon Fisher