Are you thinking of selling your company to an ESOP? Do you have an existing ESOP and need to explain the benefits to your employees? Or, do you have employees who have some vested interest in the future value of the company? In this post, we will discuss the ways in which your employees can impact the value of your company and ultimately the value of their investment in the company.<\/p>\n\n\n\n
Before we talk about employees, let\u2019s do a quick review of the basic components of value.<\/p>\n\n\n\n\n\n\n\n
First, a company\u2019s value depends in large part on whether it is public<\/strong> or private<\/strong>.<\/p>\n\n\n\n Next, a company’s value depends on some basic valuation drivers. There are two methods that are usually combined to arrive at a realistic value: Income Approach<\/strong> and Market Approach. <\/strong>(Discussed in Part 1 of \u201cHow to Sell Your Business.\u201d<\/a>)<\/p>\n\n\n\n The simple formula is Benefits x Pricing Ratio = Value<\/strong>. However, what isn\u2019t<\/em> so simple is knowing what benefits to use. And even LESS<\/em> simple is knowing which ratio to apply!<\/p>\n\n\n\n With that basic review of valuation as a foundation, let\u2019s take a look now at how a company\u2019s employees can affect its value. After all, unless the sale is a liquidation situation in which the company is no longer in operation, the value of a business goes far beyond the simple worth of its assets minus its liabilities. The people who run the company are the ones who ultimately are responsible for its profit!<\/p>\n\n\n\n While employees are the life-blood of any company, to be fair\u2026it doesn\u2019t all<\/em> rest on their shoulders. Before we look at how a good (or bad) team affects a company\u2019s value, let\u2019s quickly remind ourselves of a few outside forces at work on any organization:<\/p>\n\n\n\n That\u2019s a great question, and there is quite a bit to unpack in the answer. So we will cover how employees impact value in detail…next time. Stay tuned for Part 2! (Insert \u201cShameless Cliffhanger Music\u201d here.)<\/p>\n\n\n\n If you find yourself needing answers to real-world questions about business valuation or selling your business before then, though, we\u2019d love to talk with you. Give us a call at 901-761-7500<\/a> or contact us online<\/a> to find out how we can help!<\/p>\n","protected":false},"excerpt":{"rendered":" Are you thinking of selling your company to an ESOP? Do you have an existing ESOP and need to explain the benefits to your employees? Or, do you have employees who have some vested interest in the future value of the company? In this post, we will discuss the ways in which your employees can […]<\/p>\n","protected":false},"author":3,"featured_media":662,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[14,20,7,8],"class_list":["post-661","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-business-valuation","tag-employee","tag-esop","tag-valuation"],"yoast_head":"\n
For example, in a company with an ESOP<\/strong>, a Trustee sets the price, but there is no stated market value. Therefore, the Trustee will engage an independent appraiser to help determine its fair market value. (Read \u201cWhat is an ESOP and Why Should You Care<\/a>\u201d and \u201cESOP vs 401(k)<\/a>\u201d for more information.)<\/li><\/ul>\n\n\n\nVALUATION DRIVERS<\/h3>\n\n\n\n
For profitable businesses with potential for future growth, this is often the best way to assign value since it gives prospective buyers an informed look into their potential ROI. After the actual earnings or cash flows of the business are calculated, a multiplier is applied to arrive at an accurate selling price.<\/li>
There isn\u2019t a one-stop database for publicly traded stock information and information on recently sold businesses, so it takes some investigating across several databases to get accurate comparisons. This method works best in industries where there is a large number of similar companies or transactions with a wealth of public information.<\/li><\/ol>\n\n\n\nHOW EMPLOYEES IMPACT VALUE<\/h3>\n\n\n\n
FACTORS BEYOND EMPLOYEE CONTROL<\/h3>\n\n\n\n
SO WHAT CAN<\/em> A COMPANY\u2019S EMPLOYEES CONTROL?<\/strong><\/h3>\n\n\n\n