On your journey as an entrepreneur you may start several different companies and take part in different kinds of projects that would end up with the need of evaluating the company at some point.
You could find yourself in the processes of selling your company, buying out shares from your business partner or in the middle of the merger that would bring profit for every party involved. And the easiest part ends as soon as you are stunned with a simple and very complicated question at the same time – What is the best way to value a company before selling? As food every interesting questions in our lives there is no straightforward answer unfortunately, but you don’t have to face this question alone – it would be very wise to reach for help from professional and find your personal business broker online at Website Closers – with a wide variety of specialists you surely would find a business broker that would be glad help you and to provide all the necessary information and services.
What kind of approach is the best for you and your company?
There are several valuation methods that became a standard for the industry and usage of specific ones determined by a whole variety of factors. To ensure your better understanding and some sort of a head start in this matter we prepared information about several valuation approaches:
- If such an option is available in your position, a good place to start may be the marketplace of some kind – it would allow you to search for a similar business that is currently listed for sale and the similarities in field of work or industry, amount of employees and some other categories should give you some sort of understanding of the starting point of evaluation. This is one of the valid reasons to consider the professional advice from a business broker – they have more information about current proposals that are available to be bought at the moment and more important they have experience and can have a success story of selling companies in your field of work or unsuccessful stories that you could learn from not to repeat the same mistakes.
- It is possible to use the adjusted net asset approach in order to try to calculate the baseline price of your business in some cases. This method allows you to find the final price of all the assets in the possession of your company. This approach is usually taken in cases of bankruptcy or if an operational cash flow is in a steady decline – not able to generate any profit during a long period of time.
- Seller’s discretionary earnings number is usually applied for small businesses that are being prepared to be sold or acquired. All the incomes of the business without any necessary payments and unnecessary expenses are taken in consideration in order to figure out the amount of money that the owner could possibly earn for a chosen period of time. This means that the final profit is not the actual number you also should add the non-recurring and non-essential business expenses including your personal compensation and use of the personal vehicle for company’s business. After you calculated the final SDE (seller’s discretionary earnings) you could find out the selling price by multiplying that number. The multiplication coefficient is determined by several factors including the situation and all the important factors that play their respective roles.
Useful tips for how to increase the value of a company before selling
Each and every situation and business-building story is unique, and it would be impossible to present the correct answer and strategy that would work for everyone, but we prepared some useful tips that you may apply and mistakes to avoid when valuing a company before selling.
- The main secret is timing. Market is a volatile place by its nature, and the answer to the question – What is a fair asking price for a company? – may change with time and circumstances in a global economy or in some particular field of work. It is important to conduct the sale at the right point in time to make sure that all your hard work would be appreciated and would show on the final check when the deal is closed.
- Don’t be limiting your own options. The market would consider your company more valuable with plans for the future that would include widening your customer base or launching a new type of product. The business with a clear future and a plan for its growth would be much more interesting for the future owner.
- Among other factors to consider when valuing the company before selling would be the cash flow. It would be a wise decision to make an effort to improve your cash flow before the final evaluation. You could use the advice of your accountant or business broker. Maybe you may implement a system that would help to minimize the delay in payment from your customers, usage of a special financial instrument – like short term deposits, also may improve your company’s situation.
- Use the help of a professional. Good business broker would pay for himself – meaning that his experience and thoughtful advice throughout the process would help you increase the final valuation number and earn you much more money in the end.