Thinking of Selling
According to recent research, 49% of business owners nominate a “third-party sale” of their business as their preferred and most likely succession planning exit option. With record numbers of businesses selling, business owners are often disappointed when the offer they receive, via a third-party sale, is well below their expectations.
Valuing a business is usually the first step in developing an effective plan for sale. It is also usually the first stumbling block.
Our business valuation methodology now allows business owners, with our assistance, to determine and identify:
• A relatively accurate and understood current business value
• The value needed at the expected time of sale
• Areas for improvement to achieve the desired sale price
Our valuation method goes much further than just valuing a business. It allows business owners to change their business’ key value driver inputs and instantaneously see how an improvement in these drivers affects the business’ value. This type of scenario analysis can provide a high degree of comfort to business owners, as it identifies the areas in the business that can be improved, to bridge the usual gap between the current business value and the owner’s sale price expectation.
Our valuation goes further than merely analysing the financial statements that are provided by the business. We also review other information regarding the business that can have a huge impact on the value of the business.
Andrea owns a successful retail healthcare business. She is thinking of selling her business and expects to receive $1,500,000. With the use of the Business Capitalisation Rate Calculator to value the business and determined a value of $1,050,000. We were then able to use our valuation demonstration to show the impact of improving stock turnover rates, expanding high value product lines and offering incentives to staff. All these changes would help Andrea achieve her sale price expectation well before her planned sale date. Andrea now has a clear plan on what she needs to do to achieve her desired sale price.
As a detailed understanding of the Case Study would highlight, a business’ value is affected by both objective (directly quantifiable) and subjective (indirectly quantifiable) value drivers. Not only are the quantifiable profit and cash flow figures important but so also are the non directly quantifiable or non financial value drivers. The less easily quantifiable value drivers include industry risk, growth, benchmarks, business risks, competition, customer and market demand, staff and owner’s level of involvement in the business and succession and estate planning matters.
Some specific examples of non financial value drivers include:
• Is your business reliant on you?
• Degree of customer loyalty?
• How would a 10% increase in your prices affect the demand for your products/services?
• Staff retention history?
• Supply disruption?
• Do competitors have barriers to entry to the industry?
• Succession/estate planning in your own and your customer’s businesses?
If you are thinking of selling your business in the future it is important that you get your business valued. So often there is a value gap between what the business owner thinks the business is worth and what it is actually worth. To help you understand this gap, and also how to bridge the gap contact our office to arrange a free no obligation discussion on valuing your business.