HOW MUCH IS MY BUSINESS WORTH?
When you’re considering what someone would pay for your business there are three main considerations:
- What you want to sell your business for
- What the market will bear
- What lenders will finance
All three of these have to work together so that when your business is listed you attract buyers and are able to close the deal with the least of amount of stress and disruption:
1. What You Want to Sell Your Business For
We both have the same aim – to sell your business for the highest price possible. However, it’s important to understand that what you want to sell your business for isn’t always what the market will bear, or lenders will finance. Identifying your walk-away number, the net proceeds amount you desire, is essential to designing your business to provide you with that amount upon sale.
I will assist you in analyzing the dynamics of your business in relationship to your walk-away number to identify if there are gaps between what you want and what the market will bear. Considerations such as how much risk you want to carry and how long you may need to be around for the transition will also factor into the price.
2. What the Market Will Bear
Buyers look at your business differently than you do as the owner. As the owner, you consider the time, money, and effort that you’ve put into growing the business. Buyers focus on what they can do with the business going forward. They don’t look at the past, except to forecast what the business will do in the future. They are investing their money into the business and expect to achieve a return on their investment after the bank is paid.
I take the time to learn about you and your business to ensure qualified buyers understand the attributes and opportunities not reflected in financials. Areas such as assets, cash flow, track record, customer base, intellectual property, and growth prospects will all be used to determine a price that is reflective of what we feel the market will pay.
3. What Lenders Will Finance
Lenders are often the final judges in determining what a buyer can pay for your business. Imagine listing your business for sale and finding someone that wants to buy it for your listing price, but no bank will finance the deal. Lenders are protecting their interest, which doesn’t always align with what you or the buyer want.
We understand how lenders assess risk and work with qualified buyers to prepare professional loan application packages. We work with all parties to structure a deal that will be mutually beneficial and allow the deal to close.
Need An Opinion of Value?
Methods that we use in calculating the valuation of your business include:
To arrive at a realistic listing price for your, we use several evaluation methods. We use a combination of these that allow us to test our assumptions, “sanity check” each conclusion, and calculate a realistic Opinion of Value. We work hard to provide you a realistic listing price that will attract buyers, get your business sold and maximize your profits.
The primary three methods we use in calculating the valuation of your business include:
- Market Method – Makes a determination of how much discretionary net cash flow would be available to a buyer, then applies a multiplier to determine a likely value. The multiplier generally ranges from 1 to 5, sometimes higher, and is selected based on a number of factors and brokerage industry data.
- Multiple of Earnings Method –Evaluates several weighted values of attributes that make your business more or less valuable, such as historical profits, income risk, location, marketability, and so on. Such weighted values also produce a multiplier, which is added to a “Size Premium” determined through a nationally recognized database for each business category. The result produces yet another overall value to be compared to the Market Method.
- Buyer’s Test Method –Provides a test that simulates underwriting by a buyer’s lender, assuming a certain loan-to-value ratio, needed capital expense, an owner’s salary, debt service, a debt-service-coverage ratio, loan period, interest rate, and a required rate of return on investment. The value produced is further compared and weighted with the other methods. While this method tests for the buyer’s ability to service a loan, it is also a good indication of “bankability” by a lender at the suggested listing price.
Our history of selling businesses clearly shows that our methods establish a business value for which business owners are willing to sell, which attract buyers, and can be financed by lenders on behalf of buyers. As a broker with Benchmark Business Group, I have the privilege to work with a skilled and knowledgeable team that has managed the closings on hundreds of business acquisitions.