Growing Transferrable Value

Transferrable Value… Translation Please

By John Chionchio – Financial Advisor, Northwestern Mutual

The transferrable value of your business is its value to a would-be buyer. In many, if not most, privately-held businesses - even large ones - there is a big difference between value to you and transferrable value. The goal is for this difference to be zero.

If the concept of transferrable value is new to you, fear not. It’s pretty simple, but like many other important things in life, it’s not hard to know what to do, but you have to actually do it. Knowledge without action is the same as ignorance in the real world of business ownership.

There are four main components to maximizing transferrable value. Regardless of whether you’re anticipating a transfer to family, to employees or to a third party, planning to maximize transferrable value is in everyone’s best interest. Savvy buyers need to know the value of what they’re buying and the probability of future cash flow. Low probability equals a low sale price at best and more likely a deal that doesn’t close, an inside transfer that fails or, the biggest tragedy of all, a family transfer gone wrong!

What are the four fundamentals of maximizing transferrable value? How should they be addressed? Google won’t answer this one because the solutions are as varied as the business owners who need them. Nonetheless, an overview will get them on the frontal lobe – and hopefully into the business plan.

Financials - balance sheet and P&L - in many ways define your business. Well organized, vettable, consistently formatted financials are essential. Most businesses have these in order because they are also vital for operations.

Operations are next. Buyers need to know they can reproduce, and hopefully grow, your financials. If your operations aren’t simple and obvious, and most aren’t, they should be well documented to induce confidence that someone other than you can run your business and achieve at least the same results.

Key employees are next on the list. Are there people whom, if lost suddenly, would negatively affect achieving or growing your financials? Buyers want to see incentives in place to induce them to stay with the company. Ideally there are also protections from their loss in place. These protections usually include key person planning, non-disclosure, non-compete and non-solicitation agreements.

Last on the list is you! You can no longer be a key person in your own business when you exit, unless you’re willing to stay on as an unpaid employee. If you wait too long before you wake up to this reality, you’ll typically get far less for your business. You’ll either have to hire people, increasing payroll, reducing net income, or sell to someone with your same core skills to the business. Good luck there.

Growing transferrable value is best done organically as your business grows and matures. The sooner you have these strategies in your business plan the more powerful and effective they are later, when you have an exit on your mind. Like many other things in business and in life, long-range strategies are far more efficient and powerful than “fix-it” strategies late in the game.

The translation is now complete. Transferrable value is no longer a mystery. You have the knowledge. The real question is if action will turn it into value, or not?


Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities, and life insurance with long-term care benefits) and its subsidiaries. John Hunter Chionchio is an Insurance Agent of NM and a Registered Representative of Northwestern Mutual Investment Services, LLC (NMIS) (securities), a subsidiary of NM, broker-dealer, registered investment adviser and member FINRA and SIPC.

John Chionchio

Financial Representative


To learn more about Northwestern Mutual Investment Services, LLC and its financial representatives, visit: FINRA BrokerCheck