Proper Valuation of Your Business and How It Is Conducted.
Congratulations on your decision to sell your business. Now what? You’ve heard of first things first. Well the decision to sell IS first. The second step is figuring out how much your business is worth.
Selling your business can be a very intimidating and involved process and that is why it is a great idea to consult an experienced Phoenix business broker who can assist you with every aspect of selling your business and will guide you from the initial meeting until the final paperwork is signed.
After your initial consultation with the business broker, a valuation of your business needs to be conducted. This usually causes my clients to ask questions such as: What exactly is a business valuation? Why is it done?
A Valuation is the process of determining what the most probable selling price of your business would be in the current market.
Guesses, wishes and advice from well-meaning people not in business sales doesn’t cut it. The valuation starts with the business broker reviewing your books & records; the more detailed the better. For me to conduct a proper valuation, I need the items listed below:
1. The last three years Profit & Loss Statements and Balance Sheets.
2. Current year to date Profit & Loss Statement and Balance Sheet
3. The last three years business tax returns.
4. A list of furniture, fixtures, and equipment with current fair market values.
5. Approximate value of on-hand sellable inventory at cost.
This information will show me how your business is doing financially. If the records show your business is profitable, I then tour your business and sit down with you and ask lots of questions about your business to get a better understanding of how it is operated. For instance; are there any family members working there and would they want to stay on after the company is sold? Then I put all the information together and come up with the most realistic price I think your business may sell for in the open market.
As you can see, valuing a business is an art and a science. Potential sellers need to make sure they have an experienced and competent business broker conduct the valuation because, if they get the price wrong, one of two things will happen: If the business is overpriced, it will never sell and if it’s underpriced, they have done a disservice to the seller because they will have left money on the table.
Another important reason for getting a professional valuation is many sellers are emotionally invested in their businesses, and rightfully so, because running a business is a very personal undertaking. But your expected selling price cannot reflect sentimental value. You must think of your business valuation as an objective way to measure the worth of your company. Not what it is worth to you, but what it is worth right at this moment in the open market based on facts. (I have personally been through the selling process, so I know what I’m talking about.)
Even if your business is not doing so great right now, a carefully performed business valuation can help you identify weak spots. By addressing these weak spots and making improvements in areas needed, you can give your company a leg up and increase its profitability which will make it more attractive to buyers and fetch you a better price in the future as well.
Maybe you feel like gathering all that information is a lot of work, but you need to put yourself in a potential buyer’s shoes. What information would YOU want to see before you purchased a business? Sellers that provide the above information tend to sell their businesses faster and for more money than sellers who don’t. And for good reason, it shows them you are serious about selling your business and that you have already done a lot of the leg work in gathering substantial, detailed information that they would have requested anyway.
What it comes down to is this; a proper business valuation makes it easier for buyers and sellers. It’s as simple as that.
If you would like to explore the possibility of selling your Arizona business, contact me at 480-707-7721 or firstname.lastname@example.org.
Written By: Phil Reese
Phil Reese – Arizona Business Broker
7077 E. Marilyn Road, Bldg. 4 Suite 130
Scottsdale, AZ 85254