What is Your Business Worth?
It’s the first and likely the most important question I receive from a business owner: What is my business worth? If you’re ready to sell, you’ve probably been ready to leave the business for a while now. You want to walk away knowing you received full value from your business. Especially considering all of those years of hard work, it is crucial to your decision in leaving. That’s why you need a business broker with years of experience and knowledge to help guide you through the process.
The internet faux pas of Googling “How to sell my business” is all too common. Though it is always important to do the proper research, it is a fact that some of the information out there just isn’t very good. There are certain aspects to selling a business that may be better suited to handle with the help of a seasoned professional. If it were that easy to value a business, anyone could do it! Here’s why hiring a professional broker makes all the difference.
Why Hiring a Professional Broker is Valuable
First, and most importantly, I will meet with you as the business owner to talk about confidentiality. You certainly don’t want employees, customers, or competitors to know you’re considering selling the company. I set up file-sharing processes (with bank-level security) so your valuable company information remains confidential and protected.
I’ll analyze the past three years of financial data for your business, along with the current year’s profit & loss (P&L) statement. Then, I’ll examine your revenue mix and your revenue streams. I will also ask questions about trends in sales or other factors that might affect value. I’ll ask about the age and condition of your equipment and vehicles. Next, I’ll take a look at any leases or other agreements you might have with landlords or customers. I’ll even ask how many hours a week you put into your business, doing the work personally. All of this matters to a buyer.
Then, I will analyze debt, taxes, depreciation, and other factors that will affect value. This includes personal or one-time expenses that were run through the company. I’ll get to the bottom line for any prospective buyer: the number we call “discretionary earnings”. That’s what a new owner can realistically expect to make each month if they purchase the company.
Next, I’ll take a look at companies that are similar to yours in size and are in the same industry. I’ll examine recent sales of these comparable companies to get an idea of what buyers have paid over the past few months. It’s important to use real sales data when we start to decide what “multiple” we’ll be using as a sales price. The multiple is the number that we will be multiplying the discretionary earnings by to get the most probable selling price for your company. The larger the discretionary earnings number, the larger the multiple. Ultimately, this means the more your business is worth.
Broker’s Opinion of Value
The most probable selling price will be offered as my broker’s opinion of value or BOV. It’s the starting point for discussion about selling your company. You might get several opinions from brokers, especially if the first opinion didn’t quite meet your expectations. Be wary if you get a number from a broker that’s wildly out of line with the one arrived at through the process I’ve described above. I understand you may be thrilled to put your business on the market for such a high price. But, the wrong price paves the way for the potential of you not selling your business for years. Potentially not even at all.
A professional broker will give you a data-based opinion of what your business is worth in the current market. That includes an analysis of the size of the pool of likely buyers, the availability of funding, and market trends in the industry.
The most probable selling price (likely my BOV) gives you information you can use in discussions with your family, your financial planner, and your accountant to determine if this will be the right decision for you. If you need more money to retire or pursue your plans, you can consider building the business up for a few years. Similarly, you can wait until you have more saved for retirement, or wait for market conditions to change.
Find the Right Business Broker for You
Your business broker will also help you find qualified buyers for your business. I take the time to pre-qualify potential buyers with the SBA so we know they can get the financing they’ll need to purchase. If they can’t get the funding to make the deal, there’s no reason to waste your time. That’s the reason I do all the detailed analysis up front and set an objective price. We don’t want to waste a buyer’s time either. Transparent and clear communication makes it more likely you’ll be able to come to an agreement and close the deal more quickly.
Knowledge is power. Selling your business is one of the most complex and important transactions you’ll ever be a part of. Make sure you find a professional broker who has experience and a system you can trust. What is your business worth? Let me help you find out.
If I can help you evaluate your company’s worth and marketability, the first step is to schedule a call with me.
About the author: Jim Parker
jimp@bossgi.com
Jim Parker is an experienced business broker specializing in small businesses. His company is based in Clermont, Florida. As an industry leader, he has served as the past president of the Business Brokers of Florida and currently sits on the International Business Brokers Association’s Board of Governors. Jim is a sought-after speaker who teaches others in his industry best practices in ethics, closing transactions, and finding qualified buyers. He has earned over 50 awards and recognitions in his career.
Jim is a Certified Business Intermediary (CBI), Certified Mergers and Acquisition Professional (CMAP), Masters Certified Business Intermediary (MCBI), and is a Mergers & Acquisitions Master Intermediary (M&AMI. He is one of less than 20 business intermediaries in the world that have all four of these designations. To contact Jim, give him a call at (407) 927-8999.