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The Key to Selling at a Profit

The Key to Selling at a Profit

Jul 25 2017

The Key to Selling at a Profit starts with knowing what your Business is Worth

For many sellers determining a dollar value for their company is an emotional decision, especially if they have spent years building it from start-up to a profitable enterprise. This can create a valuation process based on personal attachment rather than the data based on marketplace realities.

Here's the bottom line:  the actual value of your business is the amount someone is willing to pay for it in the "business for sale" marketplace.  Personal feelings about your company's worth do not replace a sound valuation method, accurate documentation, seller financing and other factors that could potentially influence the value. It doesn't make a difference what you think it's worth, or what you want for it. It also doesn't make a difference what your accountant, banker, attorney, or best friend thinks it's worth.  ONLY the MARKETPLACE can decide what the value of your business is worth.

VALUATION APPROACHES


There is not a one size fits all valuation approach.  Deciding which valuation method is right for a business is based on industry, size and circumstances of the sale.

An asset-based valuation is a method where the business is valued based on the company's tangible and intangible assets.  This method often neglects the value of the company's earning potential and is most commonly used for the sale of declining businesses and liquidations.

The market approach is based on what other similar businesses are currently selling for.

The earnings multiplier method combined with the market approach is most common and oftentimes the best way to value a thriving business.  By pricing the company based on a value determined by a multiple of the business earnings potential, as determined by the market, prospective buyers gain the ability to predict an informed return of investment (ROI) estimate.

There can be a large variance in multipliers (2, 3, 5, etc.) based on the business risk and industry standards. Higher multiples are given to companies with excellent books, impressive growth, and a strong potential for future growth.

Because of the complexities involved in valuing a business, working with a business broker can be very helpful because they are already connected to buyers and investors and have the knowledge and experience to prepare you for the types of questions a buyer will likely ask while helping you through the maze of the process itself.

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 APPROACHES

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