Around the Web: A Week in Summary

Around the Web: A Week in Summary

The following information has been sourced by Business Brokerage Press for the benefit of the business brokerage community. The views of these articles do not necessarily represent the views of Business Brokerage Press. We hope you find this information helpful.

 

A recent article from Inc. entitled “How Small Businesses Can Protect Their Value Amid Inflation” discusses the current economic conditions and what businesses can do to preserve value. Cash flow is a major driver of business value, which means it is important to keep more money coming in than going out regardless of how high costs are rising.

Consider the following tips to protect cash flow:

  • Conduct a cash flow analysis and then take action to increase cash flow such as optimizing accounts receivable and reassessing inventory needs
  • Get a business valuation to determine how much your business is currently worth and develop an exit plan for when it comes time to sell
  • Don’t expect inflation to go away anytime soon, instead be creative and innovate to increase your cash flow

Click here to read the full article.

 

A recent article from Entrepreneur entitled “3 Factors to Consider Before Exiting Your Startup” explores key considering before selling your business from the perspective of an entrepreneur who completed an exit.

One factor to consider is that the grass isn’t always greener on the other side. If you stay on with the company after selling, your day-to-day experience may change considerably and what you once found exciting and motivating may no longer be there as the culture and goals change.

Another factor to consider is the importance of having a backup plan. What will you do after the sale? Having a few different ideas and options is wise and can also help inspire you as you develop more experience and expand your network.

Finally, make sure you are exiting for the right reasons and doing what you love. Following your passion can be incredibly fulfilling.

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A recent article from Axial entitled “Anatomy of an Earnout” explores the contractual provision of a business sale known as an earnout. An earnout is when a seller receives future compensation based on the performance of the business.

Earnouts involve financial goals that must be met, a timeframe for these goals to be met, accounting assumptions to establish milestones, the amount of compensation that will be paid out and who will receive it. The earnout agreement should be fair and equitable to all parties.

The use of earnouts has increased in recent years.  In part, this is due to private equity firms doing more deals in the lower middle market. The pandemic has also resulted in more earnouts as buyers try to balance risk-sharing with seller valuation expectations after the financial hit of the pandemic.

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