A common method used to calculate business value involves applying a multiple to the company’s EBITDA. And while business owners who intend to sell their business have many options to increase the transaction multiple, one way to unlock value using this calculation is to identify other, non-customary “add-backs” to increase EBITDA.
At some point during a company’s existence, it’s very likely a business owner will need a business valuation. Regardless of the reason, it is very important to understand how business valuations are conducted.
When all other factors are equal, the presence of a significant concentration among customers, suppliers, and/or employees results in a lower business value than might otherwise be expected due to the underlying inherent risks associated with any or all of these concentrations.
Buying and selling a business is a challenging and calculated process that is influenced greatly by market conditions. On one hand, business buyers must consider the historical performance of the business they intend to purchase and gauge that against financing options and other acquisition challenges to make a judgment call on how the business would perform post-acquisition. Business owners, on the other hand, must consider the money they are making now, and weigh that against a pay out and their need or desire to work less.
Many business owners are uncertain about how to establish a value for their business, regardless of its stage of development. How to value ideas, start-ups and mature businesses differ greatly. Learn more.
If you intend to grow and sell a valuable business, the Great Resignation that kicked off in mid 2021 means everything. Everything that is if you care about the value of your business.
Business owners who address the three hallmarks of a valuable business are very likely to have more options for exit and attract multiple buyers.
When it comes to the sale of a business, there are a number of costs – both expected and unplanned – all business owners should understand before they agree to sell their business. A few of our Featured Advisors have weighed in, offering their expertise and perspective to explain the costs – from business broker fees and legal costs to hidden fees – as they relate to selling a business.
What should a business owner do to prepare to sell his or her business some time in the near future?
Aside from right-sizing the business’s overhead costs to line up with its current level of revenue, and looking for opportunities the pandemic may be presenting, there are four things a business owner can do now to prepare to sell. And more importantly, doing these four things will mean that when a Letter of Intent is received from a buyer, the business will be very well-prepared to survive the due diligence stage of the sale.
The COVID 19 Era has begun. In addition to lives lost, there’s an economic toll that has yet to be determined at the time this content is being written. With small businesses on life support, these are scary times for business owners and for the intermediaries helping owners navigate through them. So how has COVID 19 affected business transactions?
As a business intermediary helping owners determine the “Most Probable Sales Price,” or MPSP of their businesses here in the Triangle, I hear a common question:
“That value makes sense, but what about all my stuff? Can I get paid for that too?”
The answer is rarely what the business owner wants to hear, but there’s a sound reason for it, and understanding how businesses are priced can help an owner with decisions on how to allocate resources for assets; especially if they are planning to sell in the near future.
In this article, we’ll explore the market approach for small businesses and what value the assets carry…
Quite simply, a business valuation is a process and set of procedures used to determine what a business worth. Sounds unambiguous, right? But it takes more than just plugging numbers into a formula — a credible business valuation requires knowledge, preparation, and a thorough understanding of the business. The result is an objective assessment of the real value of the business. In addition to estimating the selling price of a business, a business valuation can be used for many legal purposes such as divorce litigation, shareholder disputes, and estate or gift taxation.
Doing deals can be expensive. A lot of entrepreneurs want to save money by not hiring an advisor or they don’t know when they should make the investment on an advisor. It’s important to understand the roles of the broker and other advisors, especially legal counsel, and to know when to bring in a professional. Here are some milestones in a deal, and how to know when to hire a business advisor.
One of the greatest risks any buyer faces is what will happen to the business’ best customers post-sale. Will the top customers celebrate the founder’s great accomplishment or maybe decide it’s a good opportunity to negotiate better pricing or payment terms with the new owner? Or worse yet, will they be spooked by the new owners and find an alternative vendor?
Astute buyers measure this risk quickly. Typically, one of the first questions experienced buyers ask the business broker is about the presence or lack of a customer concentration.
For the business owner considering the sale of his business in the near future, having a clear understanding if a customer concentration exists is vitally important. In fact, the lack of a customer concentration is a great selling point.
Depending on the circumstances and objective of the owner, the value of a business can vary considerably. For instance, upon sale to unrelated party, an owner would expect to receive the maximum purchase price for their business the unrelated party is willing to pay. However, that same sale to a family member or employee may need to be structured so the cash flow of the business can support the purchase price.
For a closely held business, owners generally have little idea about the value of their business, or whether their business is generating an adequate return on investment, and what drives its value.
A Broker’s Opinion of Value, or BOV, can help an owner determine what the business would sell for on the open market. This, in relation to an owner’s “pain” level, are often enough to make a decision if they are ready to sell.
A business plan is critical to the success of any business. And, if the plan is frequently reviewed and updated, it becomes increasingly valuable over time. It provides valuable historical information to help a business owner make decisions on the future direction of the company.
As I meet with entrepreneurs, I’m often asked the same question: “When is the best time for me to sell my business?” The answer to this question is not the same for every business owner, for many reasons.
EBITDA is an acronym for Earnings Before Interest Taxes Depreciation and Amortization. EBITDA is often used as a measure of a business’s cash flow. Also it is used frequently in many business valuation formulas, depending on the business’s specific industry.
Anyone who owns a family business is intimately familiar with the blood, sweat, and tears associated with building and then keeping the business viable. Nevertheless, it is not unusual for the business entrepreneur to postpone consideration of various issues involved in transferring the business to the next generation, including determining the value of the business.
At some point in time, every business owner will leave their business (voluntarily or involuntarily). Through proper planning, an owner should expect to achieve their desired goals. Statistics show that the value of an owner’s business accounts for over 90% of their personal wealth. However, more than 75% of all business owners do not have a formal transition plan in place.