The Sign Businesses For Sale Blog
The Complexities of Valuations
A lot of training and experience goes into good valuations. A variety of complex factors are involved. Plus, there are certainly some subjective elements. That means that one professional’s valuation may be different from the next. Let’s take a look at some of the factors involved when it comes to achieving an accurate valuation.
Intellectual Property
Determining the value of IP or other intangible assets can be difficult. If the business in question has trademarks, copyrights and patents, it can be far more challenging to properly assign a value.
Products and Services
As it turns out, businesses that only offer one product or service are far more difficult to analyze. If a company has a lot of product diversity, a professional will typically assess a higher value. The same is true for companies that have only one or two key customers. Lack of customer diversity can bring down overall values.
Employee-Owned Companies
If a company is partially or completely employee owned, it can lower its marketability. Many company owners do not realize that employee stock ownership plans (ESOP) can change its overall value.
Life-Cycles and Supply Chains
In some cases, a business is nearing obsolescence due to advancements that have taken place. We often see this in technology companies. It should come as no surprise that if a business is near the end of its life cycle, this will raise potential issues during the valuation process. On a similar note, could the business be susceptible to supply disruptions? If a business is assessed as vulnerable in that area, it could also lower an overall valuation amount.
Accuracy of Data Received
Of course, the person handling the valuation must rely on the accuracy of the factual information they receive. If the numbers are off, the valuation simply cannot be as accurate.
These are just a few examples of the list of issues that can impact a valuation. If you’re trying to get an idea of what your business may be worth or if you ‘re wondering what factors might impact your valuation, reach out to our team. We’d be happy to discuss this in greater detail.
Copyright: Business Brokerage Press, Inc.
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What Do Buyers Really Want?
When sellers get ready to put their businesses on the market, they often wonder what buyers are really looking for in an effort to make their businesses as attractive as possible. The answer to this question can seem mysterious when you are on the other side of the bargaining table. So, what are buyers typically thinking about when they make the decision about whether or not to purchase a business? It should come as no surprise that much of this is tied into earnings and stability.
Guarantees of No Surprises
Earnings that are sustainable are very attractive to buyers. After all, it allows them to know what to expect. Buyers can then factor in if they can advance the business in a way in which it would grow faster than the current pace. If not, they at least would have the confidence to know that the business will proceed at the same rate. Of course, no buyer would want to acquire a business only to find that it only had high earnings temporarily due to a one-time contract.
Accuracy of Information
Along the same line of avoiding surprises, buyers will want to verify the information they receive about a business. Anything involving past, present, or future legal issues will be scrutinized along with other issues, such as pending product returns. The due diligence process is when you can expect the buyer to really dig into the details of your business. You can expect that he or she will often do so with the assistance of an attorney and accountant.
Oftentimes, accountants or appraisers add back one-time expenses or non-recurring expenses. Buyers will want to look at the earnings and have proof of expenses that are non-recurring, such as fees for a lawsuit or heavy repairs to a building. Since this process inflates earnings, it can make it difficult for buyers to understand the actual earning potential of a business. Otherwise, those expenses would obviously throw off the true earning potential of the business.
In Closing
These are just a few of the critical considerations made by business buyers when looking at a potential acquisition. There are numerous other considerations that a buyer will make and it is important to be prepared to address those questions and potential concerns a buyer may have up front, or they will quickly lose interest and move on to other potential acquisition opportunities. Put yourself in the shoes of a potential buyer and think about the kinds of assurances you would want before buying a business.
Working with a Business Broker or M&A Advisor can be tremendously beneficial in this regard. These professionals have worked with many buyers in the past, and therefore easily see things from a buyer’s point of view. They will not only be able to help you get prepared up front when buyers begin looking at your business, but easily identify and point out areas of concern that a potential buyer may have in order to keep the journey to closing on track.
Copyright: Business Brokerage Press, Inc.
The post What Do Buyers Really Want? appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
No Replacement for Experience
When it comes time to sell your business and sign on the dotted line, you only have one opportunity to get it right. In many cases, business owners have made critical mistakes while attempting to sell their business. This kind of scenario can often occur when an owner trusts a friend or relative to help navigate the process. In some cases, business owners have even been known to try to broker their deals on their own. Let’s take a look at some common errors that have occurred during the process when experienced professionals were not brought in to assist.
Not Prioritizing Confidentiality
We cannot understate the importance of confidentiality. When business owners try to go it alone, they often share valuable information with the wrong people, such as competitors. Or accidentally alert employees, suppliers and customers that the business is up for sale. When confidentiality is breached, unexpected and unfortunate consequences can result, such as employees looking for new work or customers switching over to work with different businesses. If any of these scenarios occur, it can devalue the business or even interfere with a sale going through properly.
Mistakes in Financial Information
If the party assisting you to sell your business lacks experience, he or she may accidentally omit preparing critical paperwork. Additionally, if the financial records are not properly audited, it could negatively impact the numbers. This could lead to lower offers and less interest from prospective buyers.
Failing to Involve Key Parties
Another error that could be caused by inexperience is neglecting to bring key parties into the deal. For example, when a business owner is guided by a layperson or trying to handle everything on his or her own, important people, such as the CFO, might accidentally not be brought into the due diligence process. While an error like this one might not necessarily kill the deal, it could lead to delays and complications.
The bottom line is that when it comes to a large transaction like selling your business, it is time to rely upon trustworthy professionals. There is a long list of protocols and steps that lead to a deal going smoothly. Experienced business brokers and M&A advisors will make sure that all the best practices are followed and that you come out ahead in the end.
Copyright: Business Brokerage Press, Inc.
The post No Replacement for Experience appeared first on Deal Studio – Automate, accelerate and elevate your deal making.