7 Steps in the Sales Cycle

by Tony Drexel Smith

7 Steps in the Sales CycleJune 2, 2018 Sales people drive revenue, communicate the Company’s messaging and often bridge the gap between the organization and its target customers. Ultimately, great sales teams with quality executive leadership create phenomenal companies because “a rising tide lifts all boats” within the company. A deep understanding of the sales cycle by C-Level Executives, sales management and the sales people provides a clear understanding of expectations, focuses energy and time in the right balance and keeps the sales staff on target by moving through a prescribed process.   

I’ve been teaching the 7-steps to selling for more than 20 years.  It is an accumulation of the training I’ve experienced by Tom Hopkins (Master the Art of Selling), Zig Ziglar (Greatest Salesman in the World), Dale Carnegie (How to Win Friends & Influence People) and Brian Tracy (Be a Sales Superstar).  Today I’ll share with you the 7 steps in the Sales Cycle that I use teach to my Clients and use daily within my company – Blue Moon Advisors. 

Recognize the “Main Theme” – Ask Questions!

Step 1: Identify the Audience – Pre meeting Research

 Compile a list of potential clients that you think are in the right audience. What is the “correct” audience you might ask? People who need your product or service.  Learn about the buyer and their company prior to contacting them.  This not only displays your professionalism to the prospective customer but does not waste time on having them educate you.  Quality research will lead to good decision making about where to focus your time and energy.  Most important however, is the fact that your customer will appreciate that you took the time to know about them.

People won’t care how much you know until they know how much you care. –    Teddy Roosevelt

This step needs to be executed perfectly otherwise the remaining steps may be useless. You want to have a good foundation when it comes to this cycle. Find out who your audience is based on what your product is. Things to consider: How old are they? Are they male or female? What’s their day like? And most importantly, what can you help them with the most?  

By answering some of these basic questions you’ve already made progress with these steps! Along with identifying your audience, identify the appropriate channels to your potential clients. Ask yourself: Were they referred by an associate? Were they referred by one of your previous clients? Did they find you via Social Media Outlets? These are all important questions to have answers to and it also leads us into our second step. 

Step 2: Make Contact – Establish the Lead

Ensure you are focused on fulfilling the customer’s needs and NOT your own. Some advice is that the customer does not care about you. They care about what you can do for them. Ask them if they are interested in learning about your product, service, or opportunity. If the answer is yes, then send them (what I like to call) teasers. Teasers are any type of introductory documents. Something that gives them a little taste of your service/product. After the first contact is made, always follow-up with a second scheduled interaction (meeting, call, etc.) Types of introductions you can use to reach your target audience. 

Group Meetings from Organizations that Your Target Client Would Attend:


      Chamber of Commerce


Direct Phone Call

      Cold Call

      3-way referral call

      Conference call



      Create a standard introductory email

      Create an information email

      Create a call to action email


Teat message

Social media

Any of these introductions will benefit you; however, choose the one that best fits your audience. Gauge their knowledge of you and your service by asking some basic questions.

Are you familiar with (insert name here)? Are you aware of our services? Do you need our services?

Asking these questions is the best way to tailor your sale. Not everyone thinks or will react the same. Make sure you have an exceptional range of tools to implement.

Some example of tools would be:

      Web links
      Example materials

Once you make contact and implement your tools be sure to set up a meeting to present.

Step 3: Present Your Services

During your presentation, share how your service/product will improve your Client’s needs and/or situation. Review the information you’ve gathered from them and use that to build your presentation. With that information, confirm the client’s interest and proceed by setting up a meeting with them. Your goal is to peak their interest. You want them to be fully engaged in your presentation.

 In the world of business today, trust is more important than ever, especially when it comes to your relationships with your clients, customers, employees, and all stakeholders in your business. But what do we mean by “trust?” Webster’s dictionary defines trust as the “assured reliance on the character, ability, strength, or truth of someone or something.” Trust is at the foundation of the survival of your business.  Gain credibility from them to ensure that your trust is solidified. Show your client’s what you can deliver to them. Show them how your process will help them.  Once you’ve completed that, Pre-close! Ask them something along the lines of “Do you see how this process can be helpful to you?” If they are still confused, be prepared to answer questions. 

Step 4: Handle Questions & Objections

When it comes to any service or product there will be objections and questions. Be prepared to answer them! Review your key features and benefits to them. It’s highly recommended to develop and provide a “Frequently Asked Questions” list. This ensures that trust and gives them more information.

Additionally, I always ask the potential client to tell me during the meeting their questions and objections so I can address them immediately. Not only does it put them at ease after you’ve addressed their concerns, but it also gives you a better understanding of their needs and desires.

Step 5: Ask For the Sale

Always ask for the sale!!! After you’ve handled questions and objections, prepare yourself to present the appropriate documents to execute the sale. Double check your documents to make sure they comply with federal, state, and industry specific rules, regulations and laws as they should be prepared by legal counsel. Don’t be nervous at this point, be confident in yourself. 

If they ask for a follow up so they can have more time to think about it, let them. A smart client will take their time making decisions. However, make sure you follow up and ask for the sale again. Handle any objections appropriately as well.

Step 6: Execute the Agreement

Coordinate with all parties associated with the agreement (legal, accounting, advisors). Provide the paperwork and documents to all persons involved. At this point the goal is having them sign up. Be very observant of the clients and watch to see if there is any hesitation or doubt in their body language. Be very supportive to them and continue building that trust.

Step 7: Follow-Up

Once the agreement is completed, provide updates via emails, phone calls, in-person meetings, etc.

Always continue building the relationship. Be involved with your clients and check in on them regularly. Ask for referrals from them and make good on commitments! Remind them that they made a great decision and provide excellent execution. 

These steps were developed over time and experience I’ve had throughout my entire career. These seven steps are designed to help you and your business thrive! As you practice these steps in your day-to-day sales it will become second nature. You will grow more confident and become the best at what you do. Even if you don’t know the answer entirely, be confident and let them know that you will find the answer to their question. I can’t guarantee you that these steps will grant you a sale every single time. There will be times when people will say no. Don’t be discouraged and don’t lose faith in yourself. Be persistent, have a burning desire to serve and practice until it’s natural. 

Tony Drexel Smith

Tony Drexel Smith is an entrepreneurial consultant and business coach specializing in business capital.  He has authored more than 1,000 publications including business plans, marketing plans, white papers, articles, blogs, booklets, pamphlets and books.  He has helped launch more than 250 companies, including hiring and training sales teams.  He has led the development of more than 750 financial packages, all including sales and marketing plans.  To date, Mr. Smith has interviewed more than 5,000 sales people over a 20 year period.  He has personally hired, trained and motivated more than 500 sales people in more than 25 organizations.  Mr. Smith is the Chief Executive Officer of Blue Moon Advisors.  For the past four years he has lived in Las Vegas, Nevada after building his practice in Los Angeles for 20 years.


Building Effective Digital Marketing Strategies

Building_Effective Digital Marketing Strategies

by Donna Howard 

March 18, 2018, Marketing is a social process. Although there are all sorts of metrics that can be used, data gathered, and analytics generated, marketing innovation is typically not driven by data. Data drives tactics, experience, practice and intuition drive marketing strategy. It’s not too complicated to employ marketing tactics, but it’s very difficult to master marketing strategy. It requires time, patience, and some critical thinking ability.

Studying digital marketing strategy is as easy as doing a simple Google search. Whatever pops up first within your search parameters is a good example of a search engine optimized website. Whatever shows up hundreds of pages later could be an example of poor search engine optimization. Closely comparing both and seeing where they are similar and where they are different can help you identify what comprises good SEO practices.

Social media provides a unique opportunity as well. You have the ability to connect with influencers as well as study how they interact with the platforms they choose to use. What platforms do they chose to employ? Do they have a substantial following on each of the platforms or are they focused on one? How do they interact with their followers? These are important questions to ask as you learn from big voices on social media.

Content marketing is another important piece of the digital marketing puzzle. As we move away from outbound marketing and traditional ads, we see the importance of creating value from marketing initiatives. Generating content that is authentic, helpful, and informative will help your business grow. Simply advertising may help you get some exposure, but building your brand awareness and your brand image will require genuinely thoughtful content creation.

Consistency is necessary in order for you to communicate with your target audience. There is a certain quality to quantity, as they say. Daily, weekly, and monthly blog articles will help legitimize your company blog and help establish a concrete online presence.

Before venturing into content marketing and other PR initiatives, be sure to get done your company voice. A journalistic tone may be appropriate for most communication, but you won’t be able to stand out as a brand without some type of personality. Brands need the help of graphic designers, copywriters, and social media experts to get this just right. It’s not something company’s can typically accomplish on their own.

If you’re a small business, you may be surprised about what you can afford. Bringing on designers, marketing consultants, and freelance strategists on a part-time basis could be a viable option. If you manage to hire the right people, you could see major returns for your business. Even if you don’t have the funds readily available, you can start crafting your brand image. Test out your own copy and designs with your friends, business connections, and family. You can start with this and tweak your brand with professional marketers later.

The brand of your company should be built around the content you’re creating. This is where your company’s message is really going to be heard. You company message needs to as concentrated and as directed as possible.

A direct, concise company message with a solid content marketing strategy will help your SEO efforts, your PR initiatives, and it will help you gauge how your target market is responding to you. At the end of the day, it’s all about how your customer is responding to your company and your company’s communication. Even the greatest marketing plans can have a lackluster response. This simply means you need to go back and look at the content you’ve created thus far and assess how you could better communicate your company’s message.

Building effective digital marketing strategies is a lengthy but rewarding process. Start employing some simple marketing tactics, researching the digital marketing strategies of competitors, and analyzing what makes strategies succeed. There’s a great deal to learn about marketing online and creating content for your target audience, and most of it is only a Google search and a little bit of elbow grease away.

– Contributor – Donna Howard is a business consultant working with high growth companies for their business development. She has worked with companies in scaling their business operations from Europe, Asia and Africa. 


How a Website Redesign Could Benefit Your Company

How a Website Redesign Could Benefit Your Company

by Michael Volkmann

TEXAS, United States, March 12, 2018  In the internet age, a business is only as good as its website. Most business these days occurs on the internet via internet traffic that is generated through ad campaigns and other forms of digital marketing. It is incredibly important for businesses of all sizes to engage the online community actively and persistently. Inconsistent activity online can lead to a perfectly viable business failing faster than it started. There is always something to learn about the internet and always something to do in digital advertising. The most important thing, however, is to have a website that draws attention and brings foot traffic to your door.

Sometimes it’s not the most ornate website or most animated but the cleanest and most efficient that wins hearts and minds. In the internet age businesses also have innumerable competitors making the task of standing out even more important. It can be difficult for businesses who are traditional, in the sense that they participate in traditional industries, to update their website and stay hip and active. Regardless, the importance of the website is only growing. Unfortunately today many businesses have sub-par website with sub-par performance and as we have seen many times over this can lead to disastrous results.

For many business owners who started their website at the beginning of their life cycles, they have yet to fully redesign their website. Nothing can help your business more than a website redesign. The ROI on a website redesign has been measured to be proportionately fantastic whether you hired a web designer or web programmer. So many times, businesses have overly simplistic and heavy websites that runs slow especially on newer computers. There is also the problem of websites that have not been updated in years which bogs down the site and greatly reduces its viability and legitimacy on Google.

If your business is in a slump then there is nothing better you can do. Matter of fact, no matter what stage you’re in on your business, a website redesign could greatly impact your business for the better. There are a number of factors that are directly impacted by a website redesign which contributes directly to increased consumer traction and interest.

The simplest and most obvious benefit is that a redesigned website looks beautiful. Taking your time and selecting the best artist you can, along with the best programmer, can ensure that your website not only stands out but captivates people. The first goal of any business is to let customers know who you are and what you are about. Having a website that directly reflects your message to the world and codifies what makes your business unique can have an immense impact on your target audience.

You can either go elegant or simplistic, interactive or passive and everything in between to design a website that reflects your business and it’s philosophy. There is nothing greater than scouring the web and finding a website that reflects what you feel and what you want to see. A custom redesign can let the internet community know what you are all about and can pull in like-minded people who would engage and participate in your business. This can all be done rather reasonably as well. For a smaller internet business you can spend  as little as $5,000 and get a website that is absolutely breathtaking. If your company is a large one, with resources to spare, then you can spend $100,000 and get the most elegant Interactive and beautiful website imaginable. That however is sometimes not even necessary as technology allows for easier design at a lower cost. This is partially why a redesign is not only a good idea but financially makes a ton of sense.

Of course a website does far more than just broadcast a message, it reflects the owners desires and philosophies about the world and its future. A website that is drab and left in the dark typically signals an owner who does not fully embrace the new techno age. One that is overly designed and overly interactive might seem like a shallow business owner that has very little to offer other than its looks. This is why it is imperative to find the right balance for your company between design and interactivity.

When website redesign goes well the ROI is incredible. However, what is most impactful is what you do with the redesign. A company that uses its redesign in an effort to spring themselves into the digital marketing  arena is not only a smart one but an effective one. This is the most impactful benefit of website redesign. It is that it allows a business that was not previously in the digital marketing game to go head-first and strong into the new marketing future.

In fact, it is this new inclusion of digital marketing that should be the primary draw for all business owners. A company that is not involved in the digital age will soon cease to be a company any longer. The future is upon us and it is time for your business to thrust itself into it.


Tips on How to Build Your Online Business – One Step at a Time

MOUNTAIN VIEW, California, September 04, 2017 Guest Contributor Michael Volkmann is an entrepreneur with a focus on business operations and finance. He has worked with many small businesses helping them with their M&A for over 6 years.

The Internet connects 3.4 billion of us every day. Unfortunately, this massive amount of traffic comes with the serious risk of being drowned out in a sea of noise. Growing your online business in this environment is arduous, to say the least, and takes sustained and concentrated effort. You may have access to hundreds of thousands of potential customers, but so does everyone else — and you’ll be competing with a far greater number of businesses than you would if you were to open a traditional, brick-and-mortar company. Starting your own online business can have manifold benefits, however, and they often have lower startup costs and higher growth potential. A successful online business can mean extra income and greater economic freedom without having to win over access to millions of dollars in venture capital. If you’re willing to conduct market research, incrementally build your audience, and — most importantly — test, fail and test again, then you’ll able to stand out from the crowd.

Building your online business is a long journey, but one that can be conquered one step at a time. It’s easy to get ahead of yourself and take too much on in the beginning stages, but taking a measured approach will ensure your success down the road. Even if things change, conceptualizing your business and vetting your ideas thoroughly is of paramount importance. Although plans often change and financial projections can never be wholly accurate or precise, they are integral to growing your business, as they serve to guide you through the bumps in the road. As Eisenhower once said, “Plans are useless but planning is indispensable.”

In order to plan effectively, you’ll need to write a formal business plan. In your business plan, if you have not already created one, you’ll need to address key aspects of your business and your vision for it as it develops. You’ll need to list goals and objectives, and include financial documents in which you make an educated guess about your profits and losses. You’ll need to backup your revenue projections with research. This requires knowing your market intimately. Too often, small business owners shy away from market research. If your idea is truly good, it will stand up to scrutiny. The only way to properly investigate whether your idea is worth the time, energy and capital you’ll have to invest into it, is to do your homework.

Ask yourself questions like:

  • Is the industry I’m about to enter a growth industry?
  • Who is my target market?
  • How much of the market could I reasonably claim?
  • How are my competitor’s capturing the market?
  • How will I learn from my competitors’ tactics?
  • What channels are my target market using?
  • How will I monetize this business? What monetization strategies are my competition using?

Examples of monetization strategies:

  • Affiliate marketing
  • Sponsored content
  • Membership site
  • Subscription

According to the Harvard Business Review, over 75% of all venture-backed startups fail; a percentage that could be drastically lowered if small business owners devoted themselves more seriously to careful planning. Even if your company does not require funding to start, completing a comprehensive business plan can help you forge a path that will guide you during the highs and lows of business ownership. In fact, you’ll need to revisit and revise this plan continually to ensure your business is heading in the right direction.

After planning your business from top to bottom, you’ll want to garner a fan base a soon as possible. Loyal customers are your lifeblood, so you will need to court them first. Building an easy-to-use website is of the utmost importance to capturing them. UX has been proven to increase customer loyalty, bolster perceived brand reliability and credibility and boost overall revenue. Think of big companies, like Apple, who invest in sleek, easy-to-understand design. These brands consistently outperform those who don’t invest in user experience. So while it is important that you craft a meaningful product or service, it is equally important to present it in a clean, professional — even stylish — way.

Once you’ve created a website, you’ll need to expand your reach. There are many avenues to garner an audience. Facebook is by far the most popular digital marketing tool for small business, with over 60 million business pages published to date, but it is not the only social media platform available to you.

Here are some ideas for building your online audience:

  • Harness social media platforms, such as Twitter and Facebook
  • Create a blog and release content regularly
  • Publish guest posts on other sites
  • Invest in paid advertising, such as Google Adwords and Facebook’s Promoted Posts

The key to building your business is assessing its weaknesses and addressing them as quickly as possible. The plan you create for your online business will act as the foundation. From it you will structure your website and your brand’s image, which will be communicated through your social media marketing campaigns. Your online business is a living thing and will need constant attention. You’ll need to revise your business plan, your marketing tactics and your pricing strategy as your audience grows. Continually planning and restructuring, paired with consistent engagement with your target audience, guarantees not only immediate returns but longevity as well.

Featured Image: Creative Commons license via Pixabay

The Proper Amount of Due Diligence: From Field to Financial Due Diligence

The Proper Amount of Due DiligenceMaximpact Services

Many types of investments are worthy of consideration by investors. However, regardless of the type of investment, it is vital for investors to consider all elements of the investment — including a risk assessment. The most effective tool in determining the reliability, quality and soundness of an investment is to use the process of financial due diligence. Click here to view Investor Financial Due Diligence Checklist.

As in the general principle of due diligence, “financial due diligence” ensures that the course of action being undertaken is wise and financially worthwhile for every party involved. Read on to learn more about the process of financial due diligence, why it is important to investors and businesses, and how a financial consultant can help.

What Is Financial Due Diligence?

When considering an investment, financial due diligence is the most important task toward making sure that the investment is sound. When performing financial due diligence, in a process very similar to an audit, every financial record, as well as any other relevant financial information to the investment, is audited and double-checked to determine if all the accounts are consistent.

By examining categories such as gross value, valuation and balance sheets, financial due diligence provides security to both the buyer and seller in any given transaction.

Although financial due diligence is generally focused on the buyer, the seller can also employ the process before moving forward.

Why Is Financial Due Diligence Important?

Evaluating the real situation of assets, their liabilities and other risks provides much-needed insight into an investment. The evaluation process is one that assists in the ability to make good investment decisions.

  • For investors, financial due diligence provides the type of information that ensures the targeted investment is in the financial position that it states it is in.
  • For businesses seeking funding, having a financial due diligence report in place can serve to impress potential funding sources and investors by demonstrating that the business is committed to transparency and is ready to move forward quickly.

This report assures both parties that an investment is viable, reliable and equitable, and it can assist in identifying any potential risk factors.

Other Types of Due Diligence

While financial due diligence is very important, it is not the only type of diligence tool that is available — and sometimes necessary. “Field due diligence,” for example, is a process used to measure the viability of certain investment sectors, such as renewable energy or agriculture, through the employment of sector-specific experts.

Sector experts perform evaluations, assessments and analysis of potential investments to identify important factors that are used in a decision-making process. In this area of due diligence, sector-specific experts and consultants may be needed to assess in sectors such as agriculture, clean technology, renewable energy, water, etc. Assessments can be technical, environmental and legal, and they can also be based on social impact, sustainability and feasibility.

How Can Maximpact Help Businesses, Investors and Funds?

Financial due diligence is an important task for both businesses and investors. However, financial due diligence is not an easy task, which is why getting it done by a team of experts through Maximpact Services will save you time and money.

Maximpact Services helps investors — such as funds, VCs, angle investors, accelerators, private investors and other types of funding sources, including grant-givers — by taking over the in-depth process of financial due diligence. Outsourcing the labor-intensive parts of the evaluation process for multiple investments enables each party to save time and money to focus on what each does best.

For businesses, Maximpact Services provides financial due diligence reports that will impress investors and increase your chances of fundraising success.

With access to hundreds of experts and consultants covering more than 200 sectors, all players can easily find the experts they need for evaluations, assessments and all kinds of due diligence.

Use this helpful tool and resource:  Maximpact Investor Financial Due Diligence Checklist

Visit Maximpact, and find out more at: Maximpact Finance Services:Due Diligence

Still have questions? Schedule a call with a funding expert and receive expert advice, or contact Maximpact, and we will guide you in finding what you need.

Attracting Investors with a Business Plan

Attracting Investors with a Business Plan

Maximpact Services

Attracting Investors: What Investors Look for in a Business Plan

Entrepreneurs, businesses and projects rely on investment capital to hit the ground running. The groundwork and roadmap must be laid out within a solid investor-ready business plan. The activation of the best business plan starts out with catching the investor’s interest.

Therefore, a strategic business plan is essential in getting the funding you are looking for from VCs, accelerator, angel investors or other types of funders. First impressions are the most lasting.

Cutting to the chase

Venture capitalists, accelerators and angel investors are extremely busy and expect entrepreneur to do the required homework before approaching them. They only choose to take projects to the next level that have a solid business plan. (Read our blog on “ Are You Investment Ready” ).

A business plan shows investors how well you know your market, product, strategy and exit plan. Unless your investors are strictly family and friends, a third party’s main concern is how your product or service will achieve traction in the marketplace, profitability and what are the possible exit strategies.

Why is a business plan needed?

Many ask whether they need a business plan. The answer is “yes”.

A business plan is the answer to the question, “What do you aim to accomplish?” It is the blueprint and brainwork for the entrepreneur, management and the investor. It conveys vision and strategy to investors, laying out the path to success – where your business will have greater profitability and increased assets.

What is an investment ready business plan?

It is the aforementioned potential profitability, which is demonstrated through financial projections – usually within a 3 to 5 year period – that attract investors. A business plan answers unique concerns of an investor when it:

•    concisely details the business, customer profile, company management, market strategy, and financial projections

•    creatively presents business ideas tailored for the investor audience

•    clearly demonstrates acceptable risk, investor reward, and value creation

What do investors look for when reading a business plan?

It is important to understand what the investor will look for before outing forward your pitch:

•    The business plan will map out the products or services offered, how they will gain traction and the speed at which they will do so.

•    Secondly, investors will think of is the exit – how much, how long and how will the investors earn their return?

•    Thirdly, how much investment capital is required to grow a company to the  point where they can earn a return on their investment and also many more rounds of investment might be needed for the following milestones to be reached?

Having these answers ready, will ensure you are prepared.

In addition investors are looking at a variety of factors including a solid management team or advisors with a proven record of success. They must be convinced that the product offering has a clear competitive advantage with a shot at increasing and substaining  the value of the company, i.e., this could include different markets that can be tapped into with the same product or service for future growth.

Approaching investors – what do you need?

Approaching investors is best done through intermediaries who have ties and relationship to VCs, accelerators, angel investors and other types of funders. Generally, business plans are not sent as a first communication tool to investors but is kept for later when the investor is interested in hearing more about your business or business idea.

The 3 tools that are a necessity to pitch a solid business proposal are:

1. An elevator pitch. A brief description of what your value proposition is, that will clearly show the investor what the traction of your idea is and ignite that spark of interest to carry on reading.

2. A high-concept pitch. This would be a single sentence within the elevator pitch, which highlights the startup’s vision.

3. A ten-slide deck in the form of a Power Point presentation to tell your company’s compelling story. Click here to see what the ten-slide deck should contain.

The elevator pitch is an incentive for investors to look at the ten-slide deck. The deck provides the impetus to set up a meeting and/or ask for the business plan.

Your takeaway is…

Always remember what are foremost in the minds of investors:

•    Traction: Is your product going to be a great addition to the marketplace with or without their investment.

•    Investment: How much funding is required and the terms offer.

•    The Exit: Investors put money in private companies hoping  they might cash out through an IPO some time in the future. They will consider and look closely at your exit strategy to understand potential return, timeframe to exit and different options.

Do you need to write a business plan? update an old one? or is your business plan investor ready? 

Knowing how to craft a solid, investor ready business plan and how to approach investors lays the foundation for attracting investors. Equally important is knowing the investor’s perspective, which is, above all, return on their investment. It is best to let a business plan expert help you write, complete or update your business plan. This is an investment which will improve your chances of funding success.

When considering your business plan needs take a look at how www.Maximpact.com can help. We have hundreds of highly qualified experts and consultants able to satisfy the needs of any entrepreneur or business. Whether you require them to have specialized skills or expertise in specific sectors we have them all.

We cater to all budgets and help your business evolve and meet its full potential. Our business experts will steer you in the right direction and make sure you have what you need to become investor ready.

Book a free consultation with one of our mentors by contacting us at info@maximpact.com or visit www.Maximpact.com.

The Importance of Business Valuation

Business Valuation

Maximpact Services | April 17, 2016

Being a business owner, whether new or established, is a constant challenge. Finding the right value for your business is key for success in your next phase. Whether you have decided to raise capital, merge, divest or sell, any potential investor will need a clear picture of what to expect before they decide to invest. There is no question that a professional business valuation, which highlights the value points in your business, is crucial.

Why You Need a Business Valuation

Business owners and interested parties need fair and honest valuations for a variety of reasons. For instance, you may actively be seeking shareholders or deciding to borrow against or even sell your company. Converting your business from a C-corp to an S-corp for tax purposes is another situation that calls for a formal business valuation.

How Business Value is Determined

For startups, their business valuations are typically based on financial projections identifying how much money they expect to bring in over a specific period of time. Existing businesses, on the other hand, will use historical and forward projections as a basis for their valuations. In any event, seeking new shareholders requires you to set a dollar value per share for both existing and new investors. The valuation is key to all parties in agreeing what is fair and equitable.

The reason for a capital raise could vary from finding and moving in to a brick-and-mortar location, hiring staff, purchasing or renting equipment, marketing the business, training employees, opening new markets and more. This is called your cost-per-share. Having your house in order is important to ensure a smooth evolution of your company and to continue to grow your business.

Completing your formal valuation enables you to decide and explain to an investor what they receive in return for their cost-per-share. For smaller investments, anywhere from 5 to 20 percent is the norm. This number is determined much the same way home values are determined: by comparing them with other, similar companies and by how well you stage, or present, your argument.

A certified appraiser may use one of three methods to evaluate your company’s worth:

  1. Market Approach: Based on “comps” or comparisons of other, similar companies
  2. Asset Approach: Based on how much money it would essentially cost to replace what you’ve managed to build so far
  3. Income Approach: Based upon future financial projection

An experienced certified valuation analyst will combine these methods in one form or another to arrive at an equitable figure. Not understanding this process, and inflating your company’s worth or underestimating it, can be the difference between success and failure. This is why it’s vital to have your valuation performed by a professional you can trust.

Increasing Your Business Value

As your company grows and succeeds over time, its worth will go up. A successful enterprise is one that shows a steady increase in cash flow, thus becoming a decreased risk, as the years progress. It should also grow and expand over time into new markets to remain competitive, meanwhile maintaining a steady growth rate.

How Your Business Value Affects Your Future Goals

Whether you begin with a smaller cost-per-share combined with a smaller shareholder percentage, or a larger cost-per-share in return for bigger stakes may not matter. Both Dropbox and Instagram today are estimated to be worth over $1 billion, according to Funders and Founders, but they both started with very different valuations. The founder of Dropbox began with shares worth $20,000 each for which he assigned 5 percent of his company. Instagram’s founder started much bigger by assigning his shares a value of $500,000 each, but in return, he gave away 20 percent of his company.

In the end, both companies reached the same financial plateau. They just achieved it in different ways.

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