Mercer points out natural product line extension for biz appraisers

BVWireIssue #150-1
March 4, 2015

“Business appraisers have a tendency to think of valuations as their only product,” says Z. Christopher Mercer (Mercer Capital), a top BV thought leader and author of a new book, Unlocking Private Company Wealth. Mercer tells BVWire that the book, written for business owners and business advisers, “addresses the needs of the tsunami of ownership and management transitions that are occurring literally every day as baby boomers, who own most of our nation’s businesses, reach 65 at the rate of 10,000 per day. And they’ll keep doing so for the next 20 years or so.” Mercer has been working with business owners and their advisers for over 30 years and is now focused on helping his fellow baby-boomer business owners.

Burning issues: The book focuses on two burning issues faced by most business owners. First, most of their wealth is tied up in their business. Second, and key, is that most business owners have relatively little liquidity outside their private-business ownership. The combination creates opportunities for business owners to take action and for business advisers to help direct and influence their actions with the idea of developing liquidity outside private companies.

The first section of the book is devoted to managing private-company wealth. “In this section we talk about the One Percent Solution, which suggests taking a percentage of the value of a business as the basis for managing the wealth it creates (e.g., 1% of $10 million equals $100,000),” says Mercer. “That budget can be used for annual legal reviews, buy-sell agreement valuation, life insurance funding for buy-sell agreements, and many other critical wealth management tasks.”

The second section of the book talks about tools for managing private-company wealth, including dividend policy, special dividends, leveraged dividend recapitalizations, leveraged share repurchases, ESOPs, and more. The third section provides important perspectives regarding the management of private-company wealth for both business owners and business advisers.

What to do: To do a valuation for exit planning purposes, you need to think like an investor. In an upcoming article in the April 2015 issue of Business Valuation Update, Mercer explains how to do this. “There are at least seven ways that potential investors look at a business,” he says. Not every investor will look from every perspective, but they all are worth consideration.

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