Business Valuation Blog | Understanding Buying / Selling a Company

Using a Business Valuation to Decide How to Price a Business for Sale

Posted by Business Valuation Specialists LLC on Sep 5, 2018 1:26:41 PM

When you're considering selling your business, do you know yet how to price a business for sale? If not, you're not alone. Most business owners don't have a solid idea of where their business stands in terms of its overall value or how to improve that value prior to the sale. Fortunately, you don't need to learn the entire process, you just need to have a business valuation performed and learn how to use the information contained in that report to improve your overall business value prior to going ahead with a sale.

Using a Business Valuation to Decide How to Price a Business for Sale

If you're considering selling your business, you have a few different ways to try to figure out the value. You could look at similar businesses in your area that have sold recently and see if you can get a similar amount for your business. You could ask a real estate agent to look at your business and let you know what you think it could sell for. You could look at your books and determine what your assets and equity are worth. 

The problem with those approaches is that they don't give you an accurate picture of what your business is actually worth. The restaurant down the street may have a better location or worse reputation that means that you're asking too much or too little for your own place. The real estate agent may price your business too high to ensure a good commission or too low because they need some fast cash. Your books may not properly reflect your business' actual value if the market is bearish or bullish. These versions of valuation will give you a value, but it's not necessarily the best value.

Additionally, these types of valuation won't provide you with ways to improve your business prior to selling, giving you the opportunity to get everything you can out of the sale of your business. The only way to ensure this is through a business valuation. But what exactly happens when you have a business valuation performed? 

The business appraiser looks at every aspect of your business, your market and your industry. They will take into account any fluctuations in the market, calculating exactly the value of your business. Does your business have a reputation for leadership and innovation in your industry? That can have a big impact on your company's bottom line. They'll also look at the finances and operation of your business, helping you find areas where your business can be improved. If there are ways you can cut your overhead, reduce waste or improve profits, a business valuation specialist can help you find it.

By taking the time to have a business valuation performed, you can learn how to price a business for sale at a fair asking price. This knowledge, in turn, allows you to make changes that allow you to get everything you can out of your company when you choose to sell it. Make certain that you work with a certified business appraiser, as they are able to act as an independent third party, providing you with an accurate business value that is completely without bias, making it a strong negotiating tool when you're ready to sell.

Tags: how to price a business for sale

Do you know how to price a business for sale? We do!

Posted by Business Valuation Specialists LLC on Oct 18, 2017 10:42:00 AM

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When you're looking at buying or selling a company, there's a lot of work involved in determining whether it's a fair bargain. But most people don't know how to price a business for sale. Some look at the income and expect it to stay about the same, while others simply tally up the value of the assets and deduct the liabilities. But there's much more involved in developing a fair price for a company. Here's a quick look at the overall process to help you get started.

Do you know how to price a business for sale? We do!

There are a few different methods used in determining company value. Here's a quick overview of each type.

Asset-based business valuation is focused on the business' value on a balance sheet. It looks at the value of the assets minus the total of the company's liabilities. However, this type of valuation typically does not represent actual company value. It does not take into consideration future business income, the condition of the market, goodwill in the industry or community, or most other areas that truly drive up company value. Though this is the simplest way to determine value, it's quite often the least accurate.

Income-based business valuation can be used in companies that have regular and irregular income. It's commonly used with companies that have had a regular growth rate over the years and expects to see the same rate of growth well into the future. In general, the future income is discounted to allow for current values and the company's value at the time of sale is determined based on that information. This is a commonly used approach for smaller businesses or those who are stable in the industry and market.

But what about when the market the business is in is currently or expected to be in a strong growth spurt? As an example, companies that have spent decades perfecting home automation technology are now seeing strong growth as this technology becomes mainstream. To base such as company on its past income, before the market began to take off, does not accurately reflect the company's future value. One way this type of company's value is determined is using the sale of similar businesses around the same time. A publicly-traded company with similar assets, receipts or income may have its value adjusted to reflect the private company being valued.

Though it can be tempting to work with a real estate agent or use the sale price of other companies to determine company value, the best route to take to get an accurate value is a certified business valuation specialist. These individuals train to determine the best possible approach for valuing a business by using methodologies that have been tested in legal, financial, tax agency and insurance circles. When they determine a company's value, you can rest assured that it will hold up well to outside scrutiny and reflects a fair price for the business.

By knowing the basic process of how to price a business for sale, you can ensure that you're in a better position to understand the niceties of how the business works. When you're considering purchasing or selling a company, having a better overall knowledge of how business and valuation works, you'll be better able to maneuver through the business world.

Tags: how to price a business for sale, business pricing