One of the most exciting and daunting experiences for a business owner is when they begin to consider selling their company. After years of hard work, the day arrives when they believe the best option is to cash out and move on to the next chapter.
An essential step in the process is obtaining an independent valuation to better understand the business's market value, including its underlying tangible assets and goodwill. The appraiser selected should be certified by NACVA, ASA, or another nationally recognized association. Make sure to discuss their credentials before moving forward.
If there are significant amounts of equipment and the buildings and land are owned, also engage with accredited appraisers who specialize in those areas while completing the full company valuation. These tangible values will then be transferred to the business appraisal as part of the overall review and analysis.
Taking time to go over financial documents with the appraiser is critical so they understand the adjustments to non-recurring and discretionary expenses that should be made. This will factor into the company's profitability. Two of the variables in the analysis will be gross revenue and adjusted net income (EBITDA), along with the potential for future growth, which can be determined through a reasonable forecast of revenue over the next 3-5 years.
It is usually expected of the owner to retain on-hand cash and receivables from finished projects and to settle liabilities, including outstanding debt. Hopefully, the net outcome for this is positive, so they can walk away with additional cash to supplement the overall sale price.
Buyers understand they will need to develop their own sources of cash flow, whether through their own capital, new loans, or investor equity.
Selling a business requires patience and effective communication to provide all necessary supporting documentation to appraisers and potential purchasers; therefore, one option is to engage a business broker familiar with the industry and the markets in which the company operates, who can assist with the overall process. In the end, it is important to feel confident with all the terms of the deal while carefully reviewing the documentation involved.
Sellers should consider hiring a business attorney to ensure all bases are covered and that legal issues are fair. Closing the sale should be one of the most satisfying events in a business owner’s career, so it is important to work through the process with the best support team available.