What is my business worth? This is the hardest question to answer for any business. Generally, when business owners think about the value of their businesses, especially if they are thinking about selling, there is an emotional driver that is usually quite different than the actual value. It is important to understand how market value is determined, how your records reflect the value of your business and ways you can maximize what you can get for it when you are ready to sell. This is a process, and when you plan ahead, know the market drivers and properly prepare your documentation, you will be satisfied that you can seek a fair price for all of your hard work growing and running your business.
Over the coming months, we are going to break down how to identify what your business is worth, how to maximize its value and the steps you will need to take to get ready for a confident sale.
The Emotional Value of Your Business
One of the greatest challenges clients experience when they decide to sell their business is separating the emotional value from the true market value when trying to set a reasonable expectation for a sale price. Unfortunately, the value is not always what you initially think it should be. And there could be a hundred reasons why from the economy, location and industry to the time in business, proper record-keeping or supply chain issues (we all know COVID-19 did a number on many businesses due to supply and logistical issues, right?).
One way to combat the emotional commitment to a sale price is to find an experienced business advisor whom you trust to be invested in your best interest, work with you to get the best price and be honest if your expectations are not realistic in the current marketplace.
Trusting Your Business Advisor
Our business advisors have a wide variety of expertise, work history, educational experiences and personalities. As a team, we have every tool you need to successfully sell your business. We are in it with you, and we do not want you to sacrifice a better price for a quick sale. If you are not ready, if you have room for improvement and are willing to put in the effort, we will stick with you until you are prepared and confident. Take a look at a “Perfectly Executed Business Exit,” in which we got an optimal sales price after investing some sweat equity into a client to ensure the best result.
One thing we hate to see is when a client has emotionally set their expectations at a price that is realistically out of reach. There are times, for example, when a client wants $1 million for the business, and we know it is going to top out around $750,000. We have put a business on the market at the insistence of a client only to get the offer of $750,000 and have the client holding out for the cool million. We know it needs to come down, but the client has a fear of missing out on a higher sale price. So, what do you do? As the saying goes, the market price is what you can actually sell it for. We work to help our clients avoid wasting time with unrealistic expectations or a fear of missing out.
Improving Your Opportunity for a Higher Sales Price
Often, we see some actions you can take to positively affect your business. While this might not be a quick solution, if you follow the process, take the business adviser’s advice and put in the time and effort, you’re going to be in a better position for us to be able to sell your business.
Our advisors want to help put you in a position to get what you want and find those premium multiples. Some of the efforts will be easy, and some won’t. Some situations may be out of your control, and so timing can be a factor. We can guide you through the process and peel the onion back so that you can move the needle.
Preparing Your Business for Sale
If you are thinking of selling your business, planning ahead is a good idea – as much as a year or two even. And it is a very good idea to engage with a business advisor during that time. Our business advisors can become accountability partners in an informal capacity (no fee) or a more formal capacity with structure, planning and goal-setting (fees apply). Investing time and money into your business now can yield up to a 50% increase in the valuation of your business from an original valuation before entering a preparation program.
We find that those who engage us during the preparation process get a higher return, are more confident in the process and are better able to separate emotion from the transaction. A little bit of time, effort and money now is more than worth it when you get the price you are looking for.
Common Value Drivers
Going forward, we are going to break down the common value drivers you need to consider when preparing to sell your business. These include:
· Market Conditions and Interest Rates
· Prevailing Industry and Economic Conditions
· Company Maturity and Reputation
· Historically Strong Sales and Margin Growth
· Year-to-Date Sales and Profitability Trends (latest LTM EBITDA)
· Verifiable Growth Potential and Pro-forma
· Quality of Books and Accounting Records
· Technology Usage and Developed Systems
· Demonstrated Realization of Economies of Scale
· Recurring Revenue Streams
· Customer Base and Contracts
· Documented Operating Expertise, Systems and Procedures
· Branding, Intellectual Property, Marketing and Asset values
· Facilities
· Structure of a Sale
· Owner Transition
· Management Team, Human Capital and Culture
· Risk Premiums (Size, Control, Resale, Etc.)
· Barriers to Entry
· Ability to Attract Multiple Prospective Buyers
· Contractual Obligations (Franchises, Leases)
· Negotiation Skills of Stakeholders
Stay tuned as we address each of these drivers and more to help you understand the best ways to price and sell your business. If you are struggling with a question about selling your business, we are happy to help. You can reach out to us at any time, and we will answer your questions and help guide you down a solid path.
About Transworld Business Advisors of the Gulf Coast
Transworld Business Advisors of the Gulf Coast covers the northern Gulf Coast along the I-10 & I-65 corridors with special emphasis in Mobile, AL to New Orleans, LA. We strive to be the top business brokerage firm in the area and leverage our extensive experiences and our international Transworld platform to run confidential and competitive business sales processes. We help entrepreneurs to buy a business or sell a business, with a focus on helping family-owned and closely held businesses with their strategic plans for the future. Transworld offers a wide range of advisory services to the northern Gulf Coast Region, including Alabama, Mississippi, Louisiana and the Florida panhandle, that are tailored to fit your business needs, whether you’re buying, selling, preparing to sell, or franchising.
If you are ready to sell, or you would like assistance getting your business ready to sell, reach out today at GulfCoast@TWorld.com.