Making a good selling decision requires good information. Knowing how much your business is worth, in the mergers and acquisitions (M&A) and business sales context, is far too important to rely on informal advice (even from well-meaning sources), rules of thumb, or dissimilar comparisons.
If you undervalue your business, you leave hard-earned money on the table. If you overprice it, you needlessly delay or even prevent the sale of your business.
IBG uses a sophisticated, reliable method for calculating a realistic business valuation. Our business brokers’ in-depth process starts with gaining a full knowledge of your business and concludes by comparing it to current market data and, when applicable, comparable business sales.
Our determination of actual market value may be greater than your expectations … or it may be less. Either way, you can be confident that the values we report to you will accurately reflect your company’s market value in a variety of sale scenarios.
Many business owners aren’t familiar with the principles of accounting. They need to understand their profit and loss statements and balance sheets so they can make good management decisions. They also need to understand their financials when dealing with banks, minimizing taxes and negotiating for the sale of their company.
Minimizing Income Taxes:
Many business owners and their accountants are absolutely fixated on minimizing taxes by showing no income. But this can prove to be misguided planning when you try to get top dollar when selling the company.
Most business owners think their business should be priced more than it’s worth — mainly because of all of their hard work over the years. But they have to realize there are certain economics and realities that dictate the price. Besides the various methods of business valuation, the cash flow ultimately must provide the new owner a return on cash investment, ability to service debt and a reasonable salary for the owner and/or manager.
Whether applying for a loan or selling the company, business owners must be prepared to disclose EVERYTHING.
Many businesses are going through very tough times, with no end in sight. But, as bad a situation as people may be in, it can always be worse – much worse.
Many business owners have operated their companies for too long and have lost their interest or drive. As a result, the business can flounder and stop growing.
The most popular method of valuing a business uses a multiple of earnings over a period of years. Business owners should be aware of that while attempting to reduce the bottom line with personal expenses to minimize taxes.
Unfortunately, there are businesses whose market has changed so drastically that their products or services now have limited demand. And it might not be the slow economy! Those business owners may have to consider a whole new business model and get into the research and creative thinking mode. A good starting point is searching for ideas on the internet.
The title to the Rolling Stones 1969 hit song seems to echo what the market is telling many business owners these days.
The lease terms of the business space can be a major consideration for a buyer. For example, a retail business with a long-term lease at a good location can be attractive. But a long-term lease on a business needing more space to grow could be a detriment. Or there might be concerns for an expiring lease when the landlord might demand a large increase.
In today’s tough economy, obtaining financing for the sale of a business can be challenging. Banks might not like the financials or might not be able to supply the funds, even if they approved of the deal. If a good qualified buyer doesn’t have all cash, business owners may have to consider providing some if not all of the financing for the sale of their company.
Business owners can operate their company as they wish, but when they are ready to sell, will it appeal to buyers? If the numbers don’t make sense or show profits, who would want to buy it?
When sales are slow, business owners have a tendency to cut back on marketing expenses. Unfortunately, not communicating with customers and prospects will only hasten the sales slide and reduce the value of the business.
In too many cases, business financials are so confusing that no one can understand them or analyze them. And it’s not uncommon that the tax returns don’t match up with the profit-and-loss statements.
Many companies have a single customer or a few large customers that dominate their overall sales. After all, nobody wants to turn down business!
Many business owners seem unable to let go of their company and wait too long. Some lose their entrepreneurial drive and the business starts sliding. Or the market starts to change and the company loses value.
Special relationships that business owners have developed with customers can be a real issue when selling the business. A new owner may have a problem continuing that relationship and this could jeopardize the sale of the business.
Not all businesses need to have cutting-edge technology, but a company can’t fall too far behind. Buyers will be concerned if they must make a large investment in the latest technology to get the company to a competitive level.
The statement “with a little sales and marketing, a new owner could make a fortune with my business” has been heard over and over by prospective buyers. The question of course is: “Mr. Business Owner, why haven’t you made that effort?”
Business owners must be proactive to reverse any downward trends, and they must initiate a plan immediately! They cannot be complacent and just hope for the best. They must consider bold or even painful moves such as drastically cutting expenses and staff, adding new product lines or services, hiring a marketing consultant or even acquiring another company.
If business owners do not have all their financials and tax returns at their fingertips (and many don’t), it usually means they don’t refer to them to effectively manage their operations. It can also mean they don’t understand them.
Many business owners are so busy running their companies that they never seem to have time to plan for exiting the business.
Unfortunately, most business owners have a very inflated view of the value of their company. And why not? They have put so much money, time and heart into it.
Reporting a lower inventory to their accountant is something many business owners have been doing for a long time. And many accountants just accept the number.
Some businesses can’t survive without the owners trying to do everything themselves. And there are no key employees in place to help manage the operations.
Minimizing tax liability is a strategy all business owners think about. But when it comes time to obtain financing or sell the business, buried personal expenses and assets can create a problem in determining the true cash flow.