Thirdly, obtaining a realistic guide to what your business is likely to sell for in the current market. Having an understanding of how the market works and what buyers will pay for is imperative. What is important or not important to you as a seller, will often be totally different to what a buyer deems it to be.
To give a seller a guide on what a business will sell for, firstly an appraiser will want to establish what the profits are for the business. This usually involves obtaining the accountants Profit & Loss statement for the last 3-4 years for the business, and then doing a series of allowable add backs to the figures to calculate what the earning are for one working owner or in other words, the Proprietors Earnings Before Interest, Tax, Depreciation and Amortization (PEBITDA). The next step is for the Broker/appraiser to establish what the likely multiple of earnings the business can realize in the current market. This is usually based on a long list of risk factors gleaned for a business assessment, and the use of some comparative sales data.
Having an understanding how the market works and what buyers will pay for is imperative for sellers. Most buyers are well educated on what they can get for their money because they are out there scanning the market, and in many cases because of this research they know more about what a business within their search criteria should sell for, than many sellers. For buyers, its more than a long process of elimination after investigating numerous business. The business they are looking to purchase must, 1- have come along at the right time for them to take action effectively, 2- they have to feel they are the right for the business and that can actually own and operate it efficiently, 3- the business has to be in a price range they can afford, 4- and finally, most importantly they need to see value in the purchase! Until all these factors come together a sale of your business will not occur!
What is important or not important to you as a seller, will be often totally different to what a buyer deems it to be. As discussed above, buyers want to see value in the business purchase for them to act. This value perception not only revolves around some of the essential core elements of profitable and financial benefits to them as an owner, but also a whole host of other stuff like being your own boss – taking hold of that opportunity which breaks them free from the hassles of their former life and gives them the freedom to take more control over their own lifestyle/existence. Let me say, this is where it’s important for a seller to establish what some of the ‘special value points’ of their business are and communicate them to the buyers, in buyers’ terms. For example, it could be an early start and finish time of the business – that allows for time with the family; it could be the low rent of a business – which allows them to buy or rent a better house. It could be that it enables a couple to have fun working together – therefore spending more quality time together; it could be that with the level of return the business makes, a manager could be put in place – so a new owner can eventually have more time away for the business to do other things, like holidays. These are all things a broker can help a seller with, it’s called positioning the business in the market correctly!!
To provide a seller with an accurate guide on what a business will sell for, firstly an appraiser will need to establish what the profits are for the business. Therefore, you need accountants Profit & Loss statement/financials for the last 3-4 years on your business for this to occur. From this then, a broker can work with you to establish a series of allowable add backs to calculate what the earnings are for a working owner. This usually takes place during a business assessment and includes establishing addbacks to the profits such as interest, depreciation, and personal expenses etc. The next step is for the Broker/appraiser to conduct a risk assessment of the business, from which likely ROI selling ranges can be established for the business in the current market. After this exercise is carried out, the results can be compared to comparative sales data of like businesses to help confirm the findings.
For more details on the above, and an action plan for selling your business, call me or one of my team for a business assessment today.