Business Valuation Blog | Understanding Buying / Selling a Company

When you're selling a business, you've got a lot of different things to worry about. Is everything operating at its best so that you can get a good price? Are there any areas you need to work on? Is your asking price fair, too high or too low? Will you be able to sell your company as it is and see enough profit to set you up for your future plans? When it all comes down to it, your asking price can make a big difference between a successful sale that sees you into your future opportunities and a failure that sits on the market too long or sells for too low a price. Fortunately, the valuation of a company isn't something you need to worry about in the process. Here's why a business appraisal can help ensure you're asking the right price when you sell your company.

How a Business Appraisal Helps You Fine Tune Your Asking Price When Selling a Business

As you're going through the process of getting your business ready to sell, do you know what aspects of your business are in good shape and which ones will require work before it's acceptable to a prospective purchaser? What will need to go into your asking price to ensure you're getting what your company is worth? These questions are fairly common when a business owner is preparing to sell, and they are often best answered by a professional business appraisal specialist.

A business appraiser will look at a number of areas in your business. Part of that includes the financial paperwork for your company, including financial statements, tax returns and similar information. They may make adjustments to the report to convey more accurate information to the potential purchaser, such as removing significant income or expenses that can cause inaccurate spikes in the financial statements.

Another area that will be explored is the industry. The appraisal specialist will look at similar companies, in terms of discretionary earnings, company transactions, gross revenue or public companies of a similar nature. They'll then adjust the value of those companies based on the differences between the two to help determine your company's value in the marketplace. This allows for adjustment when a market is very new or experiencing strong growth that you want to capitalize on.

By getting a business appraisal before selling a business, you can quickly learn exactly what needs work in your business and can be certain that you're getting at least what it's worth. But don't settle for just any business appraisals company. You'll want one that has experience in your industry and can provide a business valuations specialist who is certified and can provide you with a valuation report based on standardized methodologies.

Whether you're approaching your retirement years or are just plain bored about the direction your business is heading, the sale of a business is something every entrepreneur considers at times. But do you know how to sell your business successfully? We've taken a look at several entrepreneurs and determined what they did right to maximize their business' profit potential during a sale.

How to Sell Your Business the Smart Way

1. Determine why you're selling your business. If you want to sell your business because you're bored or are ready to retire and the economy is in good shape, you're probably okay starting the sale process. But if you're trying to sell because your market is slow or your business is not financially successful, you may want to fix the problem first to ensure the best result. The first question of most buyers is why you're selling your business.
2. Plan the sale ahead of time. And by ahead of time, we mean a year or two ahead of the planned sale. This gives you the opportunity to evaluate why you want to sell the business and take care of any loose ends so that you can maximize your profits. Having an early business appraisal performed helps you determine where your company needs improvement prior to the sale.
3. Get a quality business valuation performed. When a valuation of a company is completed, you have a much better idea of what that company's strengths and weaknesses are and can make adjustments to create a more enticing package. Good business valuations are often a base point from which you can determine an asking price and support your side of the negotiating table. 
4. Decide whether you should or shouldn't use a broker. If you already know who your company will be sold to, such as an employee or family member, you can probably skip paying the broker's fee. But if your company will need to be advertised and listed, a broker can save you time, money and aggravation by taking care of business while you make sure your company is ready to go. 
5. Get your paperwork in order. This doesn't just mean your accounting, though that is a big part of it. Get your past three or four years of taxes together, more if your business has had irregular income over the years. Gather your maintenance and repair logs for your machinery so a prospective client can see that the equipment that comes with the business is in good condition.  If you had a machinery & equipment valuation or other appraisal completed, get them ready to share as well.
6. Find the right buyer. The sale process doesn't stop just because you have one buyer - you'll want to have two to three buyers lined up, preferably pre-qualified for financing. If you're considering offering owner financing on the business purchase, you need to have a lawyer look over the offer and paperwork you're planning on using so you're ready to go.
7. Determine what to do with the profits. Before you spend your profits, take some time to consider what you'd like to achieve financially with it. You'll also want to talk to a financial advisor to make sure you're not hit with any tax penalties later on.

Now that you know how savvy entrepreneurs do it, it's time to follow their footsteps in how to sell your business to make your the sale a success. Take the time to work through the steps and you'll see significant success. If you're looking for a reputable company to perform a quality business valuation, please contact us. We're always happy to help make your business a success.