Business Valuation Blog | Understanding Buying / Selling a Company

If and when you start the process of selling your company, the determination of the right price is a critical component. How do you determine a reasonable figure that recognizes all the factors that make up value, including sales, profit margins, marketplace, industry, employees, capitalized investments, expenses, and all the hard work you have put into it over the years? What about the timing? Are you in a hurry to liquidate or do you have the luxury of waiting for several months or a year to find the right buyer?

Here are a few important considerations to take into account that will help get you started:

Don't just base your asking price on recent comparable sales in your local or regional area. Every business is different, regardless of its similarity to other companies. Yes, you should take time to review these as a possible source, however, there are likely differences to consider, including reputation, goodwill, number of years in operation, annual sales, location, and other factors that can affect the overall valuation of your particular business.

If you're thinking about selling your business within a short timeline, 60-90 days, for example, you likely won't be able to realize 100% of the fair value. You may need to settle for a lower price given the limited exposure in the market and less interest generated as a result. Unless you can afford to extend the marketing plan for a longer period, you will need to temper your expectations and adjust the price you are willing to accept in this scenario.

Is your business in a specialized market? How many potential competitors or investors in your industry can you think of that may have an interest in acquiring your company? This factor can work both for and against you. For example, if you are one of several similar businesses in your marketplace, you may be able to quickly find a potential buyer, however, the price level may not be as high or negotiable as you would like it, given the number of competitors. On the flip side, if you have a unique operation that only a few other companies may show an interest in nationwide, you can take advantage of the specific intangible value your business will bring to a buyer but it could be a more difficult negotiation trying to place a value on the many variables at play.

Regardless of where your company falls in this framework, it is important to obtain an independent business valuation to arm yourself with a supportable unbiased assessment you can disclose to buyers at the right time. This step should be taken as early as possible to better enable you to understand the right approach to setting a price to sell. A business appraisal also provides you with insights into your business, including areas that need improvement as well as the strengths that drive value. You may even want to take the time to make certain changes in company structure as a result of the valuation and then determine the right time to go to market. A business appraiser can also provide insights into the current market and industry, which may influence your timing and decision-making.

By considering these factors before entering the resale market, you can determine the best approach to selling your business at the right price.

Valuation is essential during an acquisition, regardless of which side of the deal you find yourself on. The acquisition process can be lengthy, and there are several things you will need to prepare for, including engaging a certified appraiser to complete a current valuation of the business.

Documents at the Ready

On the seller side, the overall process will go more smoothly if the company’s financial statements, taxes, and related business documents are organized and ready for review. This will give the buyer the utmost confidence that they are making the right decision moving forward with the transaction. It will also create an efficient and effective transition.

These steps greatly assist in the appraisal process as well and can ensure the valuation is being analyzed with every piece of data available.

Work with Trusted Associates

You can't go through an acquisition alone, so before you seek buyers, find the right people to help you through the process. This may include a business lawyer, a tax adviser, a financial professional, and a certified business appraiser. These partners can help you manage expectations throughout the acquisition process and take some of the detailed busy work off your plate.

While your associates are assisting you, take the time to do your own research to better understand the market and how your company fits into the larger industry picture. Seek to view the transaction from the buyer’s perspective. This may include a review of any similar deals in your markets and other companies that commonly acquire in your industry.

Don’t Put Off the Appraisal

As a business owner, you are probably a little biased in calculating your company's value. You may be emotionally attached and not looking at the situation objectively. An independent valuation of your business will help you see things subjectively, so you can better understand a realistic range of value in the current market. Review the appraisal carefully and don’t be afraid to ask questions about the valuation. When you understand why your company was appraised at a certain price and what factors affect value, you will be a stronger negotiator.

In summary, by taking these steps before an acquisition, you can put yourself and the company in the best position possible, while navigating each step of the acquisition phase with confidence, thus maximizing the chance for success in the ultimate transaction.

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.

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.

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.

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.