You may be in your prime with no thought of selling your business, but that doesn’t mean you shouldn’t know what it’s worth. Besides leveraging the value of your company for financial purposes you should have an exit strategy and that precludes knowing its value. The value of your business is fluid, and much depends on your willingness to participate and the motivation of the buyer.
2014 Is a Sellers’ Market
BizBuySell reported “Small business transactions jumped 41.7% in the third quarter of 2013 as compared to the same period of 2012.” Even considering expected interest rate hikes, 2014 looks to be a bull market for selling a business. That alone isn’t a reason to sell your business, but if you’re ready to take a break, move on, or facing personal challenges, it’s a good time to understand how the value of your organization is measured.
Keep Your Books up to Date – CNBC shared “Many business owners keep sloppy books, which can scare away buyers.” They went on to recommend hiring an outside firm to conduct a financial audit. Although contracting an audit may be expensive, it can pay for itself through the confidence it gives prospective buyers.
Be Willing to Stay on and Help – In this Globe and Mail article they state, “In most owner-managed businesses, goodwill is usually attributable almost entirely to the owner through his or her personal contacts with suppliers, customers and other stakeholders. Transferring that goodwill to a new owner is always challenging.” Agreeing to remain available, for a specified time, to introduce the new ownership to your customers, vendors, and employees adds value to your business.
Identify Potential Buyers – Bill McBean, in this Huffington Post piece, Valuing Your Business said, “Some may be willing to pay more than others, which affects value. For example, buying your business might give a competitor market dominance, which would certainly make it more valuable to that buyer than others.”
Know Your Cash Flow Potential – This MSN Money Value of Your Business Calculator is informative. I completed the survey with fictional information, and found it to be a good starting point toward understanding what the numbers mean to the worth of a business.
Consider Using Professional Appraisers and Brokers – NOLO Legal Encyclopedia states, “Brokers, besides knowing about potential buyers, may also be able to track down elusive information about sales of comparable businesses. Appraisers can help you set a price for the business or just value your business’s assets.”
Want to learn More?
The SBA (Small Business Administration) shares, “There are a number of different methods to determine a fair and equitable price for the sale of the business.” These include the capitalized earning approach, excess earning method, and using a balance sheet to calculate tangible assets.
You may be full of vim and vigor with no care in the world other than your start up, but you can’t predict the future. Circumstances change and you may find yourself in a situation where you must sell your business. You may not be able to predict the future, but you can prepare for it by knowing the value of your company. Do you know what your company is worth?