Why would two companies in the same industry, with the same financial performance, command vastly different valuations? The answer often comes down to how much each business is likely to grow in the future.
The Value of a business is ultimately the price at which willing buyers and sellers consummate a transaction. For a successful transaction to occur, the following needs to take place:
The time to replace that old worn-out piece of equipment is before you decide to sell. Don’t assume that a new owner will want to do it or that the price will just be slightly lower because you haven’t replaced it. The time to “spiff up” the business is now, even if you aren’t selling. Fix the sign, replace the carpet, paint the place – make it look good. Even if you’re not selling, it’s just plain good for business, and you never know when the time to sell will occur. Keep in mind that anything that increases sales also increases profits and the all-important cash flow!
Buyers buy businesses for many of the same reasons that sellers sell businesses. It is important that the buyer is as serious as the seller when it comes time to purchase a business. If the buyer is not serious, the sale will never close. Here are just a few of the reasons that buyers buy businesses:
Selling your business is a major decision! You have devoted your time, money, and energy into building, running, and operating your business. It may well represent your life’s work. If you have already decided that now is the right time to sell, you want the very best professional guidance you can get. This is when working in tandem with a professional business broker can make the difference between just getting rid of the business and selling it for the very best price and terms!
Mainstreet is typically defined as businesses with revenues of $5,000,000 or less.The process of estimating the value of a business or business interest frequently requires the adjustment of certain financial statements to free them from the influence of accounting elections that were made to minimize tax liability; and to restate them in such a way as to depict the true economic performance and condition of the company. Typical adjustments for small to mid-size businesses include excess officer compensation, owner’s benefits or “perks”, one-time expenses, or other non- related businesses expenses and/or revenue. These adjustments then define the SDE (Seller's Discretionary Earnings) of the business.
If you are considering selling or preparing to sell your business, confidentiality is an important aspect to the process.
The basic steps to selling a business are calculating the value, deciding on the most advantageous structure, marketing the business, soliciting and negotiating with prospective buyers, and completing the sale contract.
While revenues and profits (historical and recent trend) and asset market values are the basic considerations for valuing a business, customer contracts, management depth, intellectual properties, and other factors can also affect the valuation. Also, in some cases, restructuring assets (sale-leaseback of business real estate, for example) and capitalization prior to a sale can increase the combined value of the assets and operations.
Selling a business can have many important legal, business, and financial issues; therefore, you should plan to have independent representation by a lawyer and possibly a CPA to assist you with your business sale.
In order to establish an asking price, you will need to value your business. Certain industries have "rule ...
You already know that your company’s revenue and profits play a big role in how much your business is worth.