There is saying that 20% of business owners are thinking about selling their business at any given period of time. If it so happens that you fall in that 20% it will be your responsibility to make sure that you are fully prepared before you make that huge step. This article is not end all be all but it will give you a simple guide of the 4 steps you need to take to sell your business.
I highly recommend that you seek the trusted advice of a member of your professional team, as the decision to sell your business is one of the most important decisions you will make in your entrepreneurial career. Your Attorney, CPA and Financial Adviser should be able to assist you with the sale of your company or at least refer you to a qualified Business Broker or M&A Advisor that can walk you through the process step by step. An experienced business broker is a key player on your team of advisers. Business Brokers sometimes called Business Intermediaries have the necessary knowledge of the business sale process. They will be able to bridge the gap between you the seller and potential buyers and also protect you from any breaches in confidentiality (more on this in another article). Selling a business is a fine art that must be guided by professionals so use them.
Step 1 – Do you know what your business is worth?
Get a Business Value Assessment or even better a Business Valuation
Now is the perfect time to find out what the market value of your company. When you decide to put your business on the market it is very important to have your business priced correctly on the onset. A price to high will scare away potential buyers, while a low price may not satisfy your current exit strategy.
A Business Value Assessment shows what your business is worth and can sell for at this moment. A Business Intermediary can do a complete value assessment valuation for you. Valuations are based on multiple factors including actual cash flow and hard assets. Your Business Intermediary will apply an industry specific formula to determine your market value. This report will not only provide you with the actual market value but will also provide alternative pricing methods for comparison purposes.
Who needs a Business Value Assessment?
- A Business Owner interested in selling in the next 12 months
- A Business Owner already selling without a business valuation
- A Business Owner considering expansion financing
- A Business Owner who just wants to know what his or her business is worth
- A Business Buyer interested in a business for sale but wants a real valuation
A business value assessment is the first step in the process of determining the health of your company. Upon completing the valuation, adjustments can be made to improve business profitability and maximize its selling price. Your business intermediary should be able to refer you to a Business Consultant who can assist you improving the value of your company if you don’t already know one.
Another consideration is to have a limited formal valuation done by a certified business appraiser. This type of valuations is usually intended for business with sales between $2,000,000 and $10,000,000. The report is intended for “asset sale, financial buyers” and provides a detailed review of all aspects of the business that will determine valuation of your company.
Performing a business valuation is sometimes considered more of an art than a science. Valuing a business is typically influenced by many various factors including timing, the state of the economy, the specific industry, the banking environment and even the stock market. The valuation expert will produce a price range for the seller in order to prepare for negotiations. The prices will be calculated using a multiple of earnings, comparables or other similar companies & cost of capital to cash flow comparison.
Some companies order business valuations up to five years prior to going to market. This practice provides time to improve the health of the business to optimize the market value. Upon completing your valuation you will know what your business is worth. Having this information prior to going to market drastically enhances your chances of selling at the best possible time and price.
Stay tuned for Step 2 — Preparing Your Business For Sale