Business Valuation Blog | Understanding Buying / Selling a Company

With 2024 in mind, many of us vow to change a habit or two and get a fresh start on improving our way of life with the proverbial New Year's Resolution. This change in mindset can often be fleeting when the thought process does not materialize into instant benefits after minimal dedicated work effort. The brain can quickly adjust back to telling you that everything is fine, and you feel pretty good about yourself.

The same can be said for your business where it is much simpler to continue with the old way of doing things, especially when the year-to-year results are solid, and you and your staff seem content with current operations. There might not be any reason to overhaul your business model, however, you can always be more proactive in looking ahead and tweaking a couple of things based on recent experiences and increased knowledge.

One of these adjustments should involve not waiting for a reason to take a concrete look at your company and establish a baseline value, so you can better measure the real worth of all the effort you’ve put behind it over these past years and create a tool that can monitor progress in the future. Obtaining an independent, professional appraisal of your business is always a good idea, regardless of what might otherwise force the need to complete one as part of a pending transaction.

Most business owners wait until they absolutely need to have a valuation done, in complement to such things as bringing in or buying out a partner, a personal divorce, or refinancing debt to obtain working capital. As a result, there is a sudden rush to get it completed, and the added pressure of working through the process can further stress an already time-consuming and tedious situation.

If you have already recently completed a valuation, while using an experienced, accredited appraiser, it is simply a matter of sharing this report with the appropriate parties and immediately checking the box for this requirement. Advising your valuation expert that the purpose is for “internal business planning” will allow you to utilize the report for most of these future developments. Getting into the habit of updating the business valuation annually will make it more certain that the results are current and will be sufficient for any third party to review and consider as part of the larger transaction.

Being proactive is generally considered a benefit in your day-to-day life. Having a similar game plan when it comes to your business is just as important, if not more critical when it comes to continued success.

You may know that getting the value of a business is important before you sell the business. But did you know that taking a step back and getting the value of the business taken while you are still formulating your exit strategy can help you earn more when you go to sell? Learn why we recommend having a company valuation done in advance of a business sale. 

How a Business Appraisal Can Help in a Sale 

During an appraisal, the business appraiser will typically review the cash flow of your business along with the market value for businesses like yours. It can be very helpful to see how you "stack up" to your biggest competitors and learn what a typical buyer might be willing to pay for your small business. This information can also help you make the right moves before you officially announce the sale. 

When you know the value of your business vis a vis competitors, as well as your cash flows, you can look at things from a buyer's perspective. Those improvements you have been putting off making while you work on your exit strategy? If you make them before you go to sell the business, and they increase your market position relative to competitors, suddenly they may seem like a bigger priority. 

If the appraiser's valuation suggests that market demand in your niche will fluctuate, it may make sense to postpone your exit or to speed it up and sell while the market demand is high. For example, software as a service is a hot niche right now. If you want to sell a software as a service company, now would be a good time. 

If your niche were low in demand right now, you could certainly plan to sell the business but might not be able to earn what you anticipated when you originally dreamt of selling. Knowing that demand is lower than hoped for, you could then determine whether business improvements could help you raise the company valuation or whether you would spend more on making business improvements than you could earn back in a sale. 

An appraiser will bring outside perspective and nuance to the business valuations process that you, as the owner, are simply unable to have. The valuation you receive in the appraisal process can help you better evaluate unexpected things that tend to arise during the sales process. 

If you are willing to continue working for a few years and you can take actionable steps to improve your business cash flow and reduce liabilities, using the appraisal report as a guide, you can increase the business cash flow and your chance of a profitable sale. 

When it comes to small business appraisals, it is vital that you select a business valuation firm that is familar with your industry, employs accredited business appraisal professionals, and is trustworthy. After all, when you are basing business improvements on the recommendations of the appraisal, you need to feel trust and confidence that you are doing the right thing. 

If you are working on your exit strategy and would like a business valuation to prepare you for the process of selling your small business, Business Valuation Specialists is here to help. Contact us to learn more about small business appraisals or to find out the value of your company.