Business Valuation Blog | Understanding Buying / Selling a Company

What do you need to know about how to sell a business?

Posted by Business Valuation Specialists LLC on Apr 11, 2018 4:03:00 PM

When you started your business, you probably didn't think about what would happen when you were ready to sell. It's easy to get caught up in the daily operations of your business and your long-term goals. But when it's time to look at an exit strategy and consider selling, do you know how to sell a business? Here's some practical advice on how to start the process.

What do you need to know about how to sell a business?

When you're first considering selling your business, you should start by taking a look at your motives. As with most business transactions, you'll want to sell while the market is stable or growing to ensure you get a better price and faster sale. However, it's also important to start the process far enough in advance to ensure the best possible sale at the end of the process. Generally speaking, it takes between two and four years to prepare a business for sale.

One of the first steps you should always take in preparing a business for sale is having a business valuation performed. A business valuation looks at the entirety of your business operations as well as outside factors, such as market conditions and competitors. It provides you with a baseline value for your business, but it's the intel that you can gain that is truly valuable. The level of detail that is reached makes it a great tool for improving your company's financial picture. If it shows problems with your production line, you now know where it can be improved. If it shows issues with bad debts in your accounts receivable department, you can pursue different strategies to close out those accounts successfully.

Once you've started to make improvements, you can start to decide how to pursue the sale of the business. You have a couple options available, either selling it through a broker or going it on your own. A broker will take some portion of the sale price, typically a commission on the sale, but already has a good idea of how the process works, which outlets will provide you with the best outcomes and how to move the process along when it's needed. At the same time, you can focus on getting your business ready for sale rather than trying to sell it yourself. However, if you have the free time or may know prospective buyers in your field, you may want to consider handling the process on your own to avoid having to pay fees to the agent or broker.

However, one area where you won't want to skimp is in document preparation. With the many different laws and regulations varying from location to location and industry to industry, hiring an attorney to handle the paperwork ensures that your interests are protected and that no mistakes are made in the process.

Knowing how to sell a business isn't the first thing on every entrepreneur's to-do list, but it is an important piece of knowledge to have. By knowing when it's time to get out, you can make a more successful ending for your ownership in your company and receive a better asking price during negotiations with a prospective new owner. Even if you're not ready to sell yet, considering the steps involved can help ensure your business is growing at its best potential.

Tags: how to sell a business, selling a business

Business Appraisals Help Fine Tune Asking Prices When Selling a Business

Posted by Business Valuation Specialists LLC on Jan 18, 2017 3:04:00 PM

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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.

Tags: selling a business, business for sale, valuation

How to Use a Business Valuation for Exit Planning Purposes

Posted by Business Valuation Specialists LLC on Dec 15, 2016 8:41:21 AM

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When you're working on an exit strategy for your business, you've got a lot of different options to consider. But one area where you can discover real value is through a business valuation for exit planning purposes. By determining the valuation of a company, you can figure out exactly where you need to improve your business before putting it up for sale or passing it on to the next generation. Here are some details on how you can use business appraisals to plan a comprehensive exit strategy.

How to Use a Business Valuation for Exit Planning Purposes

A business valuation is a financial document that provides solid evidence of your business' value. It can provide significant insights you may not have considered into your position in the market, your daily operations, your balance sheet and a number of other aspects. By having this information in hand prior to completing exit planning, you can determine whether it is worthwhile to make particular improvements to your business to maximize profits from the sale of your business.

One of the first areas of scrutiny that many prospective buyers will look at will be your business' financial statements. But what if you've had the occasional irregular income or expense? A qualified business valuation specialist is able to put your paperwork through adjustments in a process known as normalizing.This provides prospective buyers with a much more accurate view of your business' financial picture. Beyond the financial statements, a good business valuation specialist can provide advice on whether you should pay down particular debts, get legal documentation in order or reduce overhead expenses. This can make your business more flexible as it goes into the exit process.

But what about your assets otherwise? If your accountant uses a standardized depreciation table for tax purposes, they're using a completely legal way to depreciate your assets. But if those assets are still in use by your business and have been completely depreciated, they still have value that is not being counted as assets. If you have assets that are being used hard and must be replaced before they are completely depreciated, you may still have them recorded as assets even though they have no value. A good business valuation specialist can help make sure your balance sheet reflects accurate values by recommending things such as an equipment appraisal.

But what about outside influences that can affect your business' appraised value? An experienced business appraiser may have a better feel for where the market is going and whether it is a good time to sell or if you should plan on waiting out a slump in the market to get the best possible value for your business. Do you have a new competitor in the region or in your particular specialty? A good business valuation specialist may be able to give you advice on how to further specialize or develop your unique selling point to make your business more attractive to a prospective buyer. 

By getting a business valuation for exit planning purposes, you can create a comprehensive exit strategy that provides you the opportunity to get the most from your business. If you're not currently working with a certified business valuations specialist who has experienced in your industry, please feel free to contact us today. We'd be happy to connect you with one of our experienced business appraisal specialists.

Tags: exit planning, family business, selling a business

Why a Valuation is Important When Selling a Business to a Third Party

Posted by Business Valuation Specialists LLC on Mar 16, 2016 10:00:00 AM

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When you're selling a business to a third party, the topic of business valuations may arise. But why is a business appraisal important when you're selling your company, and what difference will it make at the end of the day? As it turns out, the valuation of a company is one of the key documents that several parts of the process revolve around. Here's why:

Why a Valuation is Important When Selling a Business to a Third Party

When you're selling a business to someone you don't know, you want to make sure you can get everything you have coming out of the business into which you've put so much of yourself. A quality business valuation is the first step to ensuring that happens. By having a company appraisal performed, you can see any areas where your business needs improvement, whether it's getting a few pieces of machinery repaired or improving your facilities to make them more welcoming to customers. At the same time, you'll learn where your business is already strong so that you don't have to put further effort into areas that are already in excellent shape. Once you've made the changes and improvements, your business should have increased in value, allowing you to see more benefit from your actions.

The next step is to list your business for sale and entertain offers. If you're like many business owners, you know that your business should be worth more than the assets on the balance sheet, but probably don't know what that figure actually works out to be. By having a business appraisal in hand, you have a much better idea of what that figure should be, and so you can consider offers that are reasonable while dismissing those which are not. You can also decide between appraisal methods, whether you want to ask a price that is in line with similar businesses in your market or if you feel you have a unique position that should be accounted for and request that the appraisal reflect future income from your current business.

But don't feel that you need to snap up the first offer that comes along that is within your acceptable price range. If there is still a significant difference between the offer and the appraised value of your company, having a company appraisal helps you at the negotiating table. Because a company appraisal is based on a standardized methodology, it represents the very best of appraisal practices and procedures, even holding weight in legal, insurance and financial circles. If you want the other party to come up in price, providing them with a copy of a certified business appraisal report may make them aware of facts and circumstances about your business they may have previously been in ignorance of. This then gives them a chance to either change their initial offer or meet a counteroffer you've proposed to them during negotiations.

Business appraisals are vital to your success when selling a business to a third party. If you're getting ready to sell your business and haven't contacted a business valuation firm, please feel free to contact us today. Our qualified business appraisal specialists are ready to help you get the maximum benefit from your business sale.

Tags: Business Valuation, selling a business

Selling a Business? 5 Reasons to Get a Business Valuation First

Posted by Business Valuation Specialists LLC on Dec 29, 2015 12:00:00 PM

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If you are wondering how to sell a business, do you think about how to attract buyers or how to position the business for a fast and fair sale? If the answer to either of these questions is yes, then you need a company valuation to help establish the business value and guide the sale. Learn 5 reasons you should get a business valuation before selling the business you have worked so hard to grow. 

1. A business appraisal gives you an objective formulation for business value - Preparing to sell your business is a highly emotional time. For many business owners, the sentimentality risks clouding their judgment and causing them to act against their best interests. When selling a company, getting a business valuation from a certified appraiser means you receive an objective estimation of business value that you can use to evaluate offers. When you have an independent valuation of a company, you ensure you will not miss out on a reasonable offer from stubbornness or sentimentality. 

2. Shorten the time to sale - Too often, business owners get into a lengthy business sales process because they fail to understand the true value of their business and price it accordingly. During an appraisal, a certified business appraiser can estimate the present value of the business and explain this to the owner. With the proper knowledge, an owner is more likely to price the business competitively and accept a reasonable offer. This results in a shorter time to sale than when an owner prices the business using emotions and ignores offers that truly are in good faith. 

3. Learn what to do to position yourself for a successful sale - If you really want a successful business deal, you will seek a business valuation well in advance of the sale. Getting the valuation of a company ahead of time helps you by essentially giving you an actionable list of ways to make your business more profitable when you go to sell it. After seeking an appraisal, you can tackle items on the list to make your business more desirable to potential buyers and more profitable for you when you go to market. 

4. Lends you credibility - When you want to sell your business, a potential buyer will want to know that the figures add up. Whether you are claiming to have a customer base of 100,000 or to make $5 million in profit per year, a third party is going to want to investigate these claims before purchasing the business. Since an appraiser will draw up a valuation report that goes into detail on your company's worth, it's very easy for the buyer to review the documentation as due diligence. 

5. Prevent you from undervaluing your business - While many business owners tend to overvalue their business, some go the other way and undervalue the business. Setting too low an asking price when selling may undermine the potential profits you could make. Let us say again, accuracy is key to selling your business quickly and for a fair value. 

Turn to Business Valuation Specialists for help finding a certified appraiser in your area who has experience performing business appraisals for companies just like yours. The appraisal can then help you determine your asking price and advertise your business opportunity with confidence and the facts to back up your estimation of your company's worth. 

Tags: business value, selling a business

Try Selling a Business that has a Limited Buyer Pool

Posted by Business Valuation Specialists LLC on Aug 28, 2015 9:00:00 AM

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Selling a business is never easy, but some businesses are easier to sell than others. It is relatively easy to sell a business that has a long history of generating profits every year. It is harder to sell a business whose sales and profits are erratic and unpredictable.

Though we could have chosen any type of niche business to discuss, to illustrate some factors that go into demand, let's discuss an extremely difficult to sell business - an art gallery that sells fine art.

A business appraisal for an art gallery must take into account the unique characteristics that add to and detract from its value. Although the list shown below is not complete, it does offer some insight into several factors to be considered when doing a valuation of a company.

Competition

The barriers to entry in this type of business are low. You don't need to buy expensive equipment, inventory costs are low, and you don't even have to be an accomplished artist to own a gallery. It does not take a great deal of capital to open a new art gallery and you will usually find a number of art galleries located within a few blocks, or maybe a few miles, of each other. While having numerous competitors might not be a positive in some industries, it is actually advantageous for owners of art galleries. Having numerous galleries in a small geographic area attracts local art lovers as well as art lovers who live many miles away. When more people browse through your gallery every day, you make more sales. In the art gallery business, business appraisals need to factor in the competition. 

Location

Another component for valuing an art gallery is its location. A prime location can be along the main drag or anywhere there is heavy foot traffic. Art galleries do best in upscale neighborhoods sprinkled with boutiques, bookstores, antique shops, and other art galleries. A good location adds value and makes selling a business, any business, easier to do. 

Building

If you own the building that houses your art gallery and include it in the sale price, you have a substantial asset that may be in demand. If you are leasing the space for your art gallery, and the lease is transferrable, the lease could be valuable. The number of years remaining on the lease, the monthly rent, and the availability of other spaces to rent, will all help determine the lease's value.

Inventory 

Most art that is sold in art galleries is not purchased by the gallery owner. It is usually acquired on consignment . However, some galleries do purchase and own the art they display for sale. A business valuation should account for the art that is included in the sale of the business.

List of Artists Represented

Galleries that have agreements to represent artists whose works are in demand can command a higher selling price if those artists agree to remain in the gallery after it changes ownership. The number of artists represented is not as important as the popularity (artists whose art sells) in determining the value added to the overall value of the gallery. 

Health of the Economy

Art galleries prosper in good economic times, but do very poorly when people are worried about losing their jobs and paying their bills. You have to buy food and clothes, but you don't have to buy art. When consumer confidence is high and they have a large amount of discretionary income they buy art. It is important to realize that a company valuation can vary widely depending upon the current state of the economy.  

For Sale

Selling a business that sells fine art can be an emotional experience. Most gallery owners also sell the art they create and that personal involvement makes it hard to find a price at which they are willing to sell their business. The best way to do these types of business valuations is to hire a professional business appraiser who will give you an unbiased and objective opinion of what your art gallery is really worth.

Tags: Business Valuation, selling a business