Donald Sauder, CPA

Preface: The value of a business is often associated with the value the business adds to its customers or clients, in its geographic marketplace. That value is a reflection of cash flows, net income, and asset values. A business valuation applies a fair market value assessment of that value contribution to the marketplace from a valuation model approach, i.e. the science; and adds the art of deal. The Science and Art of Business Valuation “Price is what you pay, value is what you get,” a famous Warren Buffett quote, is certainly most applicable to business valuation. Purposes of a business valuation, from setting value for buy/sell agreements, to obtaining bank financing for an acquisition, alternative financing, or exit planning in a transition, a look at what a business valuation process encompasses should be helpful for entrepreneurs. Business valuation is both an art and science. With the science of the process and set of procedures applied to a valuation approach 1) Asset approach; 2) Market approach; 3) Income approach; and an art applied to the normalization of company activity, say with a controlling interest. There are as many specific values for a business as there are valuation experts, because business value means different things to different people. For investors, the value is based upon cash flows; for a strategic bidder, e.g. a vertical integration purchase, a business value is determined from consolidation metrics, or market share advantages. The circumstances surrounding the valuation report is part of the art, e.g. exit planning for retirement, relocation, or partners joining. Albert Einstein is quoted as say, “Try not be a man of success, but rather try to be a man of value. This is true for business valuations too. A business valuation is not a success because the business value is the highest stretch, the valuation is…

Preface: Instead of studying history for one year at the university, you can watch this video for less than five minutes with Hans Rosling. Income per person (GDP per capita) is adjusted for inflation and for differences in costs of living (purchasing power) across countries. You can play with the data yourself in Gapminder World. This is a short clip from the longer film The Joy of Stats ©Wingspan Productions for BBC, 2010.   Stat gravity, yes or no?

Preface: Sometimes, a picture is truly worth a thousand words.      And you thought minimum wage was a problem! A nice holiday weekend.

Preface: The Last Drop, a niche coffee shop in Oklahoma City, OK. Serving espresso’s, macchiatio’s, cappucino’s, latte’s, and bottle water. Looking at historical interest costs compared to other agriculture expenses in the state, it’s obvious why this entrepreneur seems to be having a plenty of fun. Unless you to like work all the time, the beverage business doesn’t appear lackluster. The Last Drop Formerly involved in architectural work and renovation of the Cain’s Coffee Building, Stan Engle  has embarked on the renovation of the 1952 Howard Johnson’s restaurant.  The building was gutted and new services added. It will also house a meeting space, coffee (espresso) bar and live music venue. The building was a landmark for Howard Johnson’s which included the hotel to the south and the trademark orange roof and steeple that could be seen on their structures nationwide. https://www.facebook.com/boomerbrass

Preface: Being respectful of the high finance parable in the Bible, we’d say it is better to having taken business risks and lost, then never having taken business risk at all. Investing to Double Your Businesses Value – Part VI The Bible has very clear instructions in the world of high finance from Luke 19: 11-27. A nobleman goes on a journey and assigns three servants to invest money. Two servants take risk and one is fearful and takes no risk. The fearful servant likely has reason per the exemplified power of the nobleman; and the two servants who took risk are successful, and promoted to high positions. While there are different interpretations of Jesus parable, the face value moral is that risk in high finance, (i.e. applied to business) of taking risks is advised as less risky than the risk in avoiding risks. Assumption: the servant’s positions with that level of responsibility, certain training was likely par for the course. Entrepreneurs assume risks too. Managing risk is Part VI of Investing to Double Your Business Value. Risk management is a multiple step continuous process. Identifying the risks is a first step to managing those risks, e.g. economic, operational, marketplace, and financial risks. Identifying risks before they develop is well-advised, but identifying risks before they become terminal is as vital. In risk management one of the most problematic mistakes is a wrong diagnosis of the risk, e.g. a truck load of type writer ribbons at 50% discount, will be easily marketable. Marketplaces change and adapt, and entrepreneurs must manage the risks of those changes and adapt too. More practical risks are examples as follow — Are your business sales subject to consumer financing or only a discretionary consumer expense? What major enterprises drives commerce in your business locale or sales…

Preface: You need to be the cartographer for your business in an ever-changing business landscape;  your business skillset to map the right path forward in your industry will contribute substantially to future business value. Investing to Double Your Businesses Value – Part V Cartography is the art and science of making maps. Although the concept of a spherical Earth was well accepted by the time of Aristotle in 350 B.C. and has been widely accepted since, in ancient history, some map makers thought the world was flat. The oldest know maps in history are Babylonian clay tablets from 2300 BC, and since that time have been largely replaced in recent years with companies like Tele Atlas contributing to Google maps and LCD screen displays with programmable features called a global positing system. With more 20 petabytes of data all from within three years, the twenty million gigabyte equivalent data sets are integral to business and personal transit today. One certainty – maps have been a fundamentally important contributor to the development of modern society. We may take the value of maps for granted, but without them, reaching destinations would likely be more challenging. Doubling the value of a business requires more planning than mapping a coast-to-coast trip. Entrepreneurial ventures too require a mapping of the business journey to doubling the business value, i.e. where will we start, where were we yesterday, where are we today, and where will we be tomorrow with regards to value? A Business MAP, a Marketplace Assessment Profile, is a good tool to help you reach your business destination. A Business MAP is a business planning tool that helps you make sense of your business: the services and products viability in the marketplace, your business’s competitive advantages, industry risk, resource risks, opportunities, and value drivers. A Business MAP looks at your…

Preface: In Part IV of our series, we look at the role a trusted advisor occupies in doubling business value; along with the three main reasons trusted advisors usually are, and should be, retained. Investing to Double Your Businesses Value – IV Socrates was once known as the name of a famous philosopher, today, it is also the name of a real world artificial intelligence system, a thinking machine. When Bill Gates, the entrepreneurial face of Microsoft Corporation, was young, he was late for supper one evening. His mother inquired why he did not promptly appear to the table. His response. “I was thinking”. Asking and answering questions to stimulate critical thinking and draw out idea’s and underlying assumptions, will always be a key process to building business value. Today, most entrepreneurs wouldn’t ask a computer for advice. For example: why do customer shop at our location? Or, where are the opportunities for our business? Or say, what will our customer service look like ten years from today? Yet, often leading to the right answer (resolution) is the right question. Let’s ask a rhetorical question relevant to this blog – Can we double the value of (your) business? An entrepreneur’s trusted advisor(s) are part four of building business value. When entrepreneurs retain ‘trusted advisors’ to coach and advise on key business themes, the decision on what advisor to rely on for advice will ultimately be key to the success of the purpose. What do you want to achieve with an advisor(s)? Trusted advisors are the people responsible for thinking through (and avoiding, and resolving) fundamental entrepreneurial risks. To mention a few risks a) marginalized pricing power, b) marketing campaigns, c) building expansions, d) human resource decision, e) new market jurisdictions f) new product or services, g) innovative changes in the marketplace, etc….

Preface: Leadership style and strategy may vary among businesses; and leadership is a substantial contributor to doubling a business value. Investing to Double Your Businesses Value – Part III Leadership is the third pillar to doubling business value. Leadership can mean different things to different people, in different situations. For instance, there are global leaders, religious leaders, political leaders, or say community leaders. A business leader, and a business leader approach are what’s required to double a business value. US President David Dwight Eisenhower said “Leadership is the art of getting someone else to do something you want done, because he wants to do it.” A business leader inspires a vision of the business future, e.g. a local industry leader in automotive repair and service in 3 years. A business leader motivates and manages employees to deliver on the vision. A business leader coaches and builds a team(s) that is effective at achieving the vision. Leadership integrates skills and skillsets to accomplish development of a masterpiece. Leadership compels and convinces the talent you need to join in achieving the business vision. Proverbs say’s where there is no vision, the people perish. A leader’s business vision is not simply accomplished with an objective of doubling business value, it is accomplished with the vision of adding value, so much value and to such an extent, that your business receives a little bit of that value in reciprocation. Leadership adds value to employees, customers, the community, and beyond. Successful business leadership is admired; from employees and customers, to the community at large; admired and respected because the vision is adding value. Leadership is ultimately a core value of business value building. A leader will provide employees on the team the access to develop and gain the necessary skills to their job well. Leadership will provide accountability,…

Preface: A well-trained talent pool is consistently aligned with premium business valuations and appraisals. This blog provides 6 reasons why you should invest continuously to train your talent in order to build business value. Investing to Double Your Businesses Value – Part II Reducing investment risk to a potential buyer increases the probabilities of the business likelihood and probability of success, and therefore increases value. Management and the talent pool of the business is one such risk factor. Successful companies have well-trained, expert and talented management and staff that are adept at performing critical functions. This can be from customer service to strategic decision making, e.g. inventory and stocking decisions, or say purchasing. Assessing your intangible assets – your talent pool is imperative. Unless your business is asset based, i.e. rental properties, talent is key drive to long-term success. Given entrepreneurial interests, we’d say the chances of a coach services or carpet sales are more likely. In those two instances, safe drivers and friendly staff are as important as price. In fact, most customers would rather pay a premium to work with a business they like. I’ve heard one business advertise that their team is “good natured guys” or simply easy to get along with technicians. You’d call them because you want a good attitude solving your problem. The premise is training. While good attitudes aren’t always easy to consistently maintain when stress levels climb, proper training and management prevent problems from ballooning. That prevention begins with a well-trained management team that can quickly identify and adeptly resolve problems. Does your business have the expertise and talent to run without you? If you can’t step outside your business for a week, without a business as usual attitude prevailing, you’ve got work to do on value drive number two – an…

Preface: A CPA provides more value to an entrepreneurial business owner than is often perceived. Here’s one more reason why an investment in expert accounting and tax services is cost effective – it increases or supports business value at time of appraisal. Investing to Double Your Businesses Value – Part I Prudent and principled savings and investments are frequently heralded as the straight path to successful retirement planning; yet for many business owners, the largest investment asset in a portfolio is business ownership. There usually is a time for every business owner to sell a minority or majority share of a business interest, and appropriate planning of that interest’ sale is the purpose of this blog. Predicting business success is like investing, a long-term approach is usually advised. Let’s say you never thought about selling any share of your business before. Maybe you’ve only launched your business 4 years ago, and success is easy, or perhaps you’ve plans to never retire. Either way, what would prohibit you from planning how you could strategically double the value of your business. After all, your personal balance sheet would give you more credit access. Well, omitting the time to plan and thinking through the possibilities is a likely reason. Although business value is subjective, there are some standard characteristics relevant to business value. To start, you need a base line. What is your business worth today? What are the value drivers and what are the risk drivers? Do you know what your ownership interest is worth? Business Value– the foundation is good accounting. A properly prepared business appraisal will include documentation relevant to the key metrics of that value. Without good accounting records for the businesses financial history, a business appraiser will not be easily able to accurately value your business asset, especially not with a premium. Therefore,…