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3 simple steps to valuable prospective financials

Rick Harris is the Director of Finance for a 35-person engineering services company. The company prepares annual budgets each year but never created a multi-year forecast.

The founder of the company is starting to contemplate
transitioning out of the business and is considering all available options from
creating an Employee Stock Ownership Plan (ESOP) to selling partial interests
to key members of management or even selling the company outright to a strategic

Rick knows that for all of these options, financing is
likely going to be necessary. As such, Rick understands that all of the
potential buyers are going to want to understand in detail the long term cash
flow generating ability of the company.

Rick reached out to Quist to get an understanding of best
practices in preparing financial forecasts.  

Preparing Your Company’s Forecast:

Determine if a top-down or a bottom-up approach is best for the company.

In a top-down approach, management
estimates the size of the market available for their business, identifies
relevant factors in sales trends, and estimates what percent of the market the
company can capture.

Companies that experience little
deviation in cash flow from one month to the next or start-up companies that do
not have any accumulated sales data may benefit from a top-down approach.

Conversely, a bottom-up approach is
typically developed from spending plans by various groups within the company. A
bottom-up forecast looks at factors such as production capacity and department
specific expenses. A bottom-up forecast may benefit a seasonal business that
experiences significant variation in cash flows throughout the year.

Use historical results as a starting point.

Management identifies the salient
economic variables that correlate with its historical revenue and
profitability. Specifically, management determines:

Is expected revenue growth due to an increase in price or volume or both?

  • Is revenue growth achievable given the current operating conditions of the company?
  • Which operating expenses are fixed vs. variable? Will fixed expenses grow over time at a rate of inflation or another index? For variable expenses, how will costs vary over time and will increases or decreases accrue directly to the customer?
  • If new products or services are in the pipeline, have all corresponding expenses been accounted for including additional overhead requirements as well as additional research and development and capital expenditures?

Benchmark the company’s forecast assumptions

If Management’s forecast is in line
with industry growth and profitability, there is a higher likelihood the
forecast is reasonable and achievable.

If the Company’s forecast outpaces
industry revenue growth or profitability, prospective buyers want to understand
how the company is uniquely positioned to achieve above market financial

After further discussion with Rick, he faced three major

He was under some time pressure to get the financial forecast completed.

Once the founder had decided to explore
transition options, he started to think more and more about life after the company.
This accelerated his desire to find a solution about how to transition the
ownership of the business.

The sooner the forecast was completed, the
sooner the company could be transitioned.

He did not have a roadmap for preparing the financial forecast.

Clearly a top-down approach was going to make
sense, but he had a number of other projects on his plate and creating a forecast
from scratch meant he had to shuffle around other priorities.

He did not have readily available industry benchmarks to determine if the company’s
long term forecast was reasonable.

To be honest, the founder had always managed
the company to a zero profit to mitigate his tax liability, so Rick never gave
too much thought about if the company’s performance on a normalized basis would
exceed or fall short of its industry peers.

Rick took advantage of Quist’s Forecast Modeling
, which walked him through a series of questions to capture
major inputs and assumptions for the forecast.

Once Rick completed this first step, he had a starting draft
of a long term forecast. He then scheduled some time with one of Quist’s valuation
experts to build out some scenario analysis and sensitivity charts.

Within just a few hours, Rick had a working financial
forecast model that he could present to the founder that illustrated a number
of different forecast scenarios. 

Shina Culberson

Have questions about valuing your business? Quist Valuation can
help. Let’s set a time for a free 30-minute consultation. We can discuss the
specifics of your business and identify the next steps needed to assess the
value of your company.

Schedule your free 30-minute consultation here

John is very excited. He’s just begun his manufacturing company, he’s got his first customers, hired employees, and delivered his first orders. The business seems to be on its way to success.

Selling his company is the last thing on his mind.

But why?

When is the best time to start planning for the sale of a business?


Most business owners do not have an exit plan. For many, the thought of leaving or selling their business is akin to death – something they don’t want to contemplate and therefore ignore.

“It’s better to look ahead and prepare than to look back and regret.”

~Jackie Joyner-Kersee

Start today

Business owners create companies for a wide variety of reasons. Starting with the end in mind helps guide the decisions that you make for your business. Growth and profitability are not the only objectives of businesses. Some business owners may be trying to create a legacy, either for themselves, their family, or their community. Others may be trying to re-define their industry and how customers interact with their products and services.

And, for others, the goal may be as lofty as of solving world hunger.

Regardless of your goal, developing an exit plan to sell or transfer the business from the start of the business lays the path early for the eventual transfer.

Exit plan overview

What if you haven’t even begun to think about exiting your company?

Now’s the time.

Creating an exit plan does take time and thought. One of the keys to a successful exit plan is reducing dependency on the owner. Structuring the business to run without the constant attention or interaction of the owner creates value in the eyes of buyers.

The value of a business is broadly measured by not only the value of the assets, but the value of the leadership and management processes, the brand value, marketing programs, and customer lists. The exit plan guides company management to make these programs more easily transferable when the time comes.

The exit is a process

For those who have prepared a company for sale or transfer, they know that starting early and getting some help from experts makes the transfer far more profitable and much less stressful.

John M. Leonetti, founder, and CEO of Pinnacle Equity Solutions and author of Exiting Your Business, Protecting Your Wealth, says “The exit is a process, not an event. This process takes time and will impact a lot of people, so owners should put a lot of thought and analysis into it to gain clarity about what the right decision is. In most cases, if owners make the investment of time, they will be rewarded for it. Likewise, if they don’t take the time for this type of planning, then they leave their legacy and wealth to chance.”

If you need help understanding where you are today and if you’re going in the right direction to create value for your company, Quist Valuation can help. Let’s set a time for a free 30-minute consultation. We can discuss the specifics of your business and identify areas to focus on as you progress along your exit plan.

Schedule your free 30-minute consultation here.

Shareholder interests

Who gets a say when it’s time to sell your company?

  • You?
  • A key employee?
  • Members of your family?
  • A minority shareholder?

In the case of many businesses, some or all of these people have input about the sale of a business.  How does a business owner handle all these potential interest groups?

With care and forethought.

Having the right process and the right approach to managing shareholder expectations is essential in mitigating risks associated with shareholder buyouts and disputes.

Here are some important factors to think about.


Deploy best practices in communication – conduct regular board meetings and shareholder meetings to establish ways to communicate key issues to stakeholders. We have often observed that these “corporate formalities” get sidelined.

Shareholders’ interests stay aligned, especially during high stress challenging situations, if there is a well-established practice of regular and structured communication.


This critical piece of documentation defines the structure of the organization and how decisions are made. It outlines how all owners are treated, including minority shareholders. However, we often come across scenarios where businesses do not have the proper company agreements in place or agreements become stale.

It’s important to layout upfront for all shareholders what they can expect about such things as company disclosures, buyout/buyback mechanism, as well as decision-making. This is particularly important when selling your business and ensuring shareholders feel they have been treated fairly and transparently.


There are often multiple and complex relationships and obligations in a family-owned company – regardless if those family members are actively involved in the business or not. To mitigate this complexity, family members should consider moving their ownership interest from being directly held in the business to a trust, and the company should move toward professional management.

Intra-family questions and issues should be addressed well before the sale of the company.


The concept of “maximizing value” is multi-dimensional – it includes not only the price paid for a business, but also the terms of the transaction and the timing. Each company shareholder has a different priority and agenda when selling the business.

Implementing an intentional process to the sale of your company ensures that you’ve fulfilled your responsibility to stakeholders. This includes getting an outside business valuation, working with an investment banker so that you’ve considered all potential buyers, and getting a fairness opinion.


Management and employees may not be shareholders in your company with legal voting rights, but they can materially impact the success of any transaction. Keep in mind that if there is an earnout component to the transaction consideration, pay particular attention to the successful transition of the company post transaction.

There are many compensation methods: a stay bonus, phantom stock, profits interests, etc. to incent management and key employees.

The key is to do the planning and corporate documentation upfront and engage a tax professional, attorney, valuation expert and IB professional to figure out the most favorable structure.

Before you go to market, understand the different interests and needs of all parties with a stake in the sale. Have the dialogue with interested parties, working on the agreements before the business is sold.

Have questions about how good planning affects the value of your business? Quist Valuation can help. Let’s set a time for a free 30-minute consultation. We can discuss the specifics of your business and identify the next steps needed to assess the value of your company.

Schedule your free 30-minute consultation here.  

GoldGearsA merger or acquisition is a big deal for any company. So how do you ensure that your transaction is a success from start to finish?

The first step of ensuring a successful transaction is to assemble the right team that will help you see the process through from step one to closing and integration. Many business owners don’t start thinking about their team of advisors until the eve of their sale.


First, because you’ve worked hard building your business, leading the company through economic ups and downs, developing your clients into raving fans and grooming dedicated employees. However, so many times preparing for a transaction forces you to take your eye off the ball. There are so many things to think about other than the value drivers of your business:

  • Who is the most likely buyer for my company? Will they be a strategic buyer or financial buyer? Or, should I sell my business to key members of management?
  • What is the tax implication on the consideration paid?
  • What is the tax implication of the transaction for me personally?
  • How much wealth do I really need to retire in the lifestyle I desire?
  • Are all of the company’s licensed and unlicensed software property properly accounted for?

Second, many business owners will be facing intense competition in trying to get there businesses sold:

As Boomers rapidly move toward retirement, supply will outpace demand. This will eventually drive down valuations and give new leverage to buyers.

Does a go alone strategy work? Sellers will be tempted to enjoy a “do yourself” strategy to save money, but you can’t successfully complete a transaction alone. Business owners who choose to represent themselves in what conceivably could result in the largest check they will ever receive are asking for trouble.


Investment Banker/
Transaction Advisor
Identify potential buyers and negotiate economic terms and conditions of the deal.
Transaction Attorney Prepare legal documents and provide counsel.
Business Valuation Specialist Identify core competencies, understand value drivers and determine primary methods of valuation.
Personal Wealth Advisor and Estate Attorney Identify retirement goals and assist with the transfer of business interests to protect and preserve wealth.
CPA Ensure financial integrity.
Tax Specialist Advise on tax implications of deal structure on the purchase consideration.
Insurance Advisor Advise on current and future risks.
Existing Banker The logical lender for a buyer if financing is required.
IT Specialist Document licensed and unlicensed software property, technology and trade names.

At Quist, we work with business owners across the full lifecycle of their businesses, from start-up stage through growth to eventual exit. We understand the leverage a strong team can bring to any transaction and strive to be an integral team member for our clients. Quist’s services can be leveraged on the front end of a transaction by assisting management in identifying key financial metrics and value drivers of a business, and in understanding market valuations. Quist’s services can also be leveraged on the back end by assisting eventual acquirers with purchase price allocations.