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Establishing Business Value Before a Sale
What is your business worth? It's difficult to tell-especially if it's a family-owned business that is not publicly traded. Typically, the value of such a business will exceed the total value of the hard assets such as equipment and inventory. In addition, assigning a value to intangible assets such as goodwill is a difficult proposition, at best. Frequently, it makes sense to have a business appraisal prepared by a professional, especially if you plan on selling the business in the near future.
Details: There are a number of ways a qualified appraiser can value the key aspects of a business to arrive at a final figure. As part of the process, the appraiser will provide a valuation report, explaining in detail the specific methodology used for the valuation. This will be invaluable when the buyer conducts his or her own due diligence. The chances of consummating the deal will increase if the buyer knows he or she is dealing with a professional.
However, this is not the be-all and end-all. The appraisal should be viewed as just the starting point for negotiations. For instance, one buyer may have strong reasons for acquiring your company and could be willing to pay more than the amounts offered by other interested parties. Conversely, another buyer might be looking to merely enhance an existing operation and may not be willing to pay for the company's going-concern value. It's important to analyze the reasons behind the sale before you establish a price.
Some of the key aspects that should be considered are:
* Both the primary and secondary factors influencing buyers;
* Different ways to add value before the sale occurs;
* Necessary adjustments to financial statements (especially those that portray your company in a favorable light); and
* The methods and formulas used to put a price tag on a business.
Note: Other adjustments may be required if you are only selling part of the business.
After the professional appraiser has established an approximate value for the business, you must use your negotiating skills to come to an agreement. Depending on the situation, you may be able to realize the full value of the business or you might be willing to accept a slightly lower price if you are looking to sell quickly. Obtain guidance from your business broker concerning the going rate for a business such as yours.
One option is not to set a listing price at all. Instead, you might contact potential buyers and provide them with information about your business. Then you solicit bids from this select group and accept the highest bid. This process may help you realize a competitive price for your business in a relatively short period of time.
In summary: The best approach is to use the services of a professional every step of the way. This can help ensure that you have established a reasonable and accurate value for your business in today's market.