Dream Business Brokers
Your company is probably your largest asset, and its sale will be the biggest transaction you’ve ever been a part of. But even if you’re not planning to retire or sell for several years, it’s a good idea to know the value of your business at every stage of its growth. Here’s why.
First, the opportunity or need to sell may arise with little notice. You may receive an unsolicited offer from a Buyer. You may need to sell for health reasons, or due to family issues. You may be facing a dissolution of a partnership or a divorce. Understanding what your company is worth helps manage expectations for all the parties involved in these cases.
Proactive Planning
Smart business owners begin planning their exit strategy well in advance. Understanding your company’s worth is an essential part of estate planning, financial and tax planning, and your overall retirement strategy. Understanding how much money you will need to finance your retirement is essential if you don’t want to outlive your savings.
We always recommend getting a valuation 3-5 years before you plan to sell the company. In my experience, 90% of business owners lack an accurate understanding of their company’s value in the current marketplace. It’s understandable; most owners factor in the blood, sweat, and tears they’ve invested over the years. They often base their own estimate on what they’re hearing from other owners who have sold their business.
Avoid Inaccurate Estimates
Those owners may be embellishing their stories, inflating the numbers, or omitting details such as self-financing a significant portion of the sale price. No one ever brags about negotiating a bad deal or leaving significant money on the table. And even if their company seems similar to yours on paper, there may have been other factors that determined what the buyer offered that you’ll never be privy to. Small business transaction details remain private, so the only people who have reliable access to reliable sales data are professionals in the field..
Develop a Plan to Increase Value
That’s why it’s never too early to get an Opinion of Value. If the number you hear doesn’t meet your needs, you’ll have time to increase revenue, tighten up operations, reduce spending, or invest in technology to increase the value of your business. A good Business Broker, or M&A Advisor, can offer suggestions on which aspects of your business would be most concerning to a Buyer or a Lender, and can help direct your efforts on the right areas to maximize value.
In this way, you’ll think like a strategic seller, knowing the current value of the business and setting a target for your sale in a few years. Buyers look at cash flow and potential for growth; they also need to make sure they can operate the company, cover the debt they’ve acquired, and realize their targeted Return on Investment upon selling. They may offer a multiple based on EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) or Seller’s Discretionary Earnings.
The financial position of a company is then adjusted according to risk factors, including a high concentration of revenue from a small number of customers, a management structure that is highly dependent on owner involvement, or the risk of becoming obsolete due to market changes or technological innovation.
Every experienced broker will tell you that what your business is really worth is what a qualified buyer is willing to pay for it. Consider an Opinion of Value to be the most likely selling price. We estimate that based on your financials, qualitative factors, and comparable sales information from reliable industry databases and our own internal database.. If I can help you understand the value of your business, click here.
