How
To Sell My Business - 6 Simple Steps To Sell Any Business
Step
1 - Preparation Step
2 - Valuation Step
3 - Finding Buyers
Step 4 - Structure The Sale Step
5 - Due Diligence Step
6 - Closing
Step
2 - Business Valuation
The
business valuation is the source of more misunderstanding and
frustration than any other element of the selling process.
There
are guidelines, rules-of-thumb, methods, multiples, evaluations
and an nonstop stream of expert advice, but there is
no single accepted method that will work for every company.
The
good news is that you don't need to become an expert
in business valuations in order to sell your business. In this
section I will try to give you some basic guidelines that will
work for the majority of small businesses out there.
When
applying different valuation methods to your business, the goal
is not to determine a selling price but instead to develop
a price range. No single calculation can give you the perfectly
correct price for your business because ultimately, your business
is worth what a qualified buyer will to pay for it. Since we
can't know what that amount is ahead of time, the best approach
is to come up with an price range as a starting point.
I
am going to show you how to do this by using one valuation approach
- The
Multiple Of Cash Flow Method. Then, by adjusting the
variables that are part of the calculation, we can get a ballpark
price range from which to begin the negotiations with a buyer.
And
that is all you can hope to get from any valuation method -
a place to begin. Buyers (and their accountants) will
have their own way of placing a value on your business and it
will probably be quite different than yours. The
ultimate selling price of your business will then evolve through
the natural give and take of the negotiation process.
The
true value of a business will be based on its ability to
generate profits for its new owner. I recommend the Multiple
Of Cash Flow Method because it is based on your company's track
record of generating profits
If
your business is new and doesn't have much of a track record,
or your business has been losing money, you may be better
off using the Asset-Based
Valuation Method .
If
business valuation is a completely new topic for you go first
to: Business
Valuation Terminology for definitions of common terms related
to business valuations.
Other
Factors That Affect The Selling Price
Whatever
method you use to come up with a value for your business, the
actual selling price will be affected by a variety of
issues. Obviously, the health of your business and the general
economy will both have an impact. So will these factors:
1.)
Terms: The selling price a buyer agrees to pay will likely
be affected by the financing terms you offer- or the lack of
them. Most small business sales include some type of seller
financing. Many owners offer to lower the overall sale price
in exchange for the buyer paying all cash up front -
but most times it's hard to find a buyer who has enough cash
to do this. On the other hand, if you can offer the buyer attractive
financing terms you will be better able to hold the line on
the selling price. Also, offering to finance the sale will certainly
increase the size of the pool of potential buyers thereby
making it easier to sell and easier to get a better price.
2.)
Type Of Buyer - Some small businesses are bought by investors
who will hire a manager to run things; and some are bought by
strategic buyers who will absorb your business into their
existing operation. But most small business buyers are individuals
that want to work in the business and pay themselves a salary.
Therefore, whatever price and terms you and the buyer agree
upon, the business will have to generate enough profits for
the buyer to pay himself a reasonable salary, make monthly payments
on the money he borrowed and have enough left over to reinvest
in growing the business.
3.)
Personal Needs - Health, divorce or other personal issues
may force you to sell. If so, you may be inclined to offer a
very low price up front. However, I would suggest you not get
too generous too soon. Even if you advertise a low price up
front, buyers will still want to negotiate down from
that low starting point. Better to follow our advice here and
come up with a reasonable price range to start. Then you can
come down off that price as needed. But if you start out at
a rock bottom price, you leave yourself nowhere to go
when the buyer makes the inevitable (and lower) counter offer.
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Step 5 - Valuing A Business - Table Of Contents:
Business
Valuation Model: Multiple Of Profits Method
Factors
That Affect The Business Valuation Multiples
Asset
Based Valuation Method
Business
Valuation Terminology
The
Six Steps To Selling Your Business
Step
1 - Preparation Step
2 - Valuation Step
3 - Finding Buyers
Step 4 - Structure The
Sale Step 5 - Due
Diligence Step 6 - Closing
