A business owner might find they want or need to sell their company. Some people do so because the business is on a downhill slide and they want to hand it off to someone who may be able to turn it around. Other people wish to retire and do different things in life. For certain men and women, the current business no longer keeps them engaged and they want to try something new.
Regardless of why you are interesting in selling your business, the goal is to make the most profit when doing so. Business owners, however, often find it challenging to put a price on their business. They may overvalue it for emotional reasons or undervalue it because they question their own worth and the worth of their venture.
The key lies in convincing a potential buyer of the company’s worth. When they believe in their heart that buying the company is the right move, they are willing to spend more to obtain it. How can a business owner know how much their business is worth? How can they persuade the potential buyer that making the purchase is the right move? A business broker is of great help with both tasks.
Factors That Affect the Price of a Business
Several factors help determine the value of a business. This includes any accounts payable and receivable on the company’s books. The value of any inventory on hand influences the price, as does the location of the business. In addition, a business broker takes into account the value of equipment, vehicles, and other hard assets when pricing a business.
Easy Ways to Increase the Value of a Business
Owners can take steps to increase the value of the business. Cleaning up the property and improving the curb appeal is one way to do so. In addition, the owner should clean up any loose ends, such as finalizing contracts or having required inspections completed. The company’s financials also need to be in order before the business goes up for sale.
Valuation Strategies
The business broker will select a valuation strategy to use. They may opt to use the asset or adjusted book value to calculate a price or turn to the multiplier by sales formula. Some situations call for using the start-up cost method, and others benefit from the discounted cash flow strategy. However, these strategies aren’t designed to help an owner maximize their profit in the sale.
What Drives Business Value?
Owners need to focus on what drives business value when they want to sell. Growth potential is one thing to consider, as buyers want to know if they can expand their earnings in the future. They also want to see how the business can continue to draw people in.
Ongoing relationships with reputable vendors and suppliers will make a business more attractive to a potential buyer. However, this buyer also wants to see customers who return to the company, as this increases the lifetime value of every customer. The company also needs to be free of any legal disputes, as the new owner doesn’t want to be facing lawsuits the minute they take over the organization.
Finally, the owner needs to have processes and systems in place and show proof of them to the potential buyer. The buyer will appreciate knowing they can make money from the moment they take over operations. A seamless transition is what every buyer wants, and it falls on the owner to show them that this type of transition is achievable.
Make improvements in these areas before putting the business up for sale. Doing so pays off in the form of a higher selling price. Begin preparing for a sale well in advance to have time to take these steps. Plan on spending a year preparing to put the business on the market, and work with a broker from the moment this decision is made. Those who do so see the best results.
