Free Business Valuation Tips
What is the owner’s involvement in the business?
Try and delegate your responsibilities and relationships with customers and suppliers, to your staff. Buyers will pay less for a business if they perceive a risk that revenue or cash flow will be lessened when the existing owner leaves. Get yourself ‘off the front lines’!
What is the age of the business?
It may be too soon to sell your business. Buyers want to see historical revenue and profitability trends. Often, a Buyer will chart revenue against key economic indicators or the price of a commodity. For example, if you are going to buy an oil and gas service company, the price of oil may be very dependent on revenue.
Less history means more risk… more risk means that a Buyer will pay less for your business.
Will the owner provide some financing to the Purchaser when the business is sold?
Consider providing some or more financing to the Purchaser. There are three important reasons for this.
First, more buyers become eligible to purchase your business. As this creates more demand, it will increase the amount someone may pay to acquire your business.
Second, if the Buyer is very keen on purchasing your business, they may pay an extra 10% -20%, if you make it easier for them to make the acquisition.
Third, most financial institutions will consider Vendor financing as equity. This improves the debt to equity ratio and may significantly help the purchaser in obtaining financing.
Providing financing to a Purchaser is common when most businesses are sold. Often adequate security, can be pledged such as a cottage, collateral mortgage, the shares of the business, or a personal guarantee.
What is the business' profitability trend?
You will receive less for your business if the perceived potential is steady or on the decline. A Buyer wants to see that the business they are buying has potential and will need to see documented results of this.
If you are ready to sell, but see opportunity, there is no better time to capitalize on the opportunity. Only a short period of time is required to prove to a Buyer that the Business has the ability to grow.