Strategic Endeavors LLC is a professional, ethical, trustworthy, and experienced Lancaster, PA based firm that practices full-time in the mergers and acquisitions arena. Working directly for business owners and together with their other advisors, we can solve many problems and answer your questions associated with the selling process and help you, the business owner, to realize the maximum value for the enterprise you have worked so hard to create.
Q: How do you know if you are creating value in your business?
A: One expert I respect says value is created when returns on investment exceed the cost of capital. Professional buyers (i.e. private equity groups) analyze transactions based on cobbling together sources of capital that each have a different cost. For example, say bank financing at 5.0%, asset based lending at 8.0%, mezzanine lending at 20.0%, and private equity capital at 30.0%. Privately held business owners do not know their current equity stake and do not assign a cost to the equity they have invested. Thus, they don't know if they are really creating value. Applying this logic may bring rationality to paying yourself, structuring your capital, and creating value.