The first question that a business owner needs to answer to determine if now is a good time to sell is “How much is my business worth?” For this reason, Valued Business Exits Opinion of Value Reports and Calculation of Value Reports.
The Opinion of Value:
The Opinion of Value is a tool that follows the guidelines set forth by the IBBA’s Certified Business Intermediary program, which takes a market approach to determining what a business will most likely sell for in the current marketplace. It’s not intended for dispute resolution or legal purposes, but to inform a business owner what the most probable sales price of the business will be. Components of the Opinion of Value include:
– Explanation of Methodologies
– Analysis of Expenses by Industry Benchmarks
– Recasting of Income Statements/Tax Returns
– Comparable analysis of similar businesses sold
– Reconciliation of comps
– Statement of the Most Probable Sales Price
With the information learned from the Opinion of Value, a business owner can determine if they want to put their business on the market at the most probable sales price, or if they need to sell quickly, they have the option to put their business on at a price lower than the most probable sales price.
Without knowing the Most Probable Sales Price, business owners can’t know if they have a “good deal” when they get to the stage where a prospective buyer has made an offer.
If you’ve ever thought of selling your business—and even if you haven’t—you may have wondered what your business is worth.
Valued Business Exits has helped hundreds of owners of small- to medium-sized businesses learn what their businesses are worth.
To understand how businesses are valued, there are four key value factors:
Bio:I'm Steve Sudlow, Accredited Business Broker. I have put many deals together from 500K to 25M and can go to 150M revenue companies in (Arizona, and Utah).
I help business owners navigate the process of selling their business and maximize their sale price when they are ready to sell their business. I can meet with you in person, or we can talk more about the process over the phone at a time that works for you. I'm ultra confidential when selling a business, so none of the employees or managers will know that anything is going on as far as selling. I do off-site meetings with potential prospects and qualify them out, as 90% of all buyers are just tire kickers!! I weed all that junk! Out! So you can concentrate on what you do best! Which is running your company?I have a top! SBA lenders and (Private Equity) lenders that get the deal done! I don't make any money having a listing sit in my portfolio, collecting dust!. I make deals happen, pure & simple.The foundation of value, especially in the market for small- to medium-sized businesses, is Seller’s Discretionary Earnings (SDE)—the total cash flow benefiting the owner. Calculating SDE is a bit tricky, so it’s advisable to obtain the services of a professional experienced in valuations. The approach is to consider not just the net income, but all the recurring cash benefits flowing through to the owner as follows:
The purchaser of a business is buying an income stream and, in most cases, a job. The more SDE a business is generating, the more it tends to be worth, although the relationship is not a linear one. As a very rough rule of thumb, a business typically sells for 1.5 to 3 times annual SDE, with the multiple increasing for businesses scoring well on desirability, risk, and terms.
Factors in this category include:
Factors in this category include:
This is the one source of value that the business seller can almost completely control. Components of the terms include:
The first three components of the terms of sale assume that the seller is providing financing to the buyer of the business, which happens in the majority of sales with seller financing. The seller receives part of the purchase price at the time of the sale (“the down payment”) and the remainder over several years. The buyer uses the cash flow from the business to pay off the debt. Structuring a sale with attractive terms can significantly increase the value of a business.