Archive for March, 2013

What Is My Company Worth?

What Is My Company Worth?

There are a ton of resources available to all of us via the internet. You can go out there and find whatever information resource you’d like and this has inspired a lot of people to become “experts.” People feel a pain or ache and they go online to become their own doctor. They receive a citation and all of a sudden they are a lawyer because of what they can read on the internet. A small business owner may go online to discover just how to evaluate his own business’s worth, but this is not wise. It’s not wise to be your own doctor or lawyer either.


There is a lot that goes into evaluating your own business and many small business owners aren’t aware of all the variables. Valuation is not something that is done often, either. It is usually the prelude to the business owner selling the business, merging with another company or justifying a massive loan. These are important parts of your business’s history and should not be taken lightly. There are also a variety of ways a professional would assign a value to your company. Here are just some of those methods:


  • Market Price – The best way to understand how this system works is the real estate market. You may have bought a house some years ago for a certain price. Then the neighborhood improved and you worked hard to improve the house yourself. Plus, the price of real estate generally rises and now the house is worth a lot more than it used to. Similar forces are at work concerning the value of that business.

  • Asset Value – This is a pretty straight forward mathematical evaluation process. The worth of all the assets the company has plus improvements made and the owner’s discretionary cash are valued mathematically.

  • Capital Value – This is the accountants dream. It focuses on the the cash flow of the business and less on the property or improvements. This isn’t just about stone cold hard cash, though; it takes into account intangibles such as the quality of the workforce, turn rates, industry trends and so forth.

  • Owner Value – This is the most straight forward way to value a business and it works fairly well for very small businesses. This simply takes into account how much money the owner of the business brings in. The owner’s discretionary cash is multiplied by 2.27 to achieve the value of the business.

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Value – Creating Value To Sell

Value – Creating Value To Sell

There are those who start a business to make money. I know that it sounds crazy, but not everyone starts a business to make money. For those who want to make money there are plenty of steps you can take to add real, hardline value to the business before it is a ripe time to sell. These are quantitate ways to make the business more valuable. It is important to start taking these steps well before it is time to sell.


The product that the business is selling needs to be of quality because this stands the test of time. A buyer will be very interested in buying a business that developed quality products because those products will continue to be high quality and in demand long into the future. The product itself is just half the battle. You need to beef up the quantity of your core product sales. Buyers compare sales by core products and channels. They are interested in seeing how many products are sold at full retail value, so sell high on the core products list.


New products will delight a buyer as well. They will be interested in a business that has something new and fresh to keep the business relevant. Create a list of new product development to show a prospective buyer.


Focus on one channel of product. Companies with many different products over a broad spectrum of channels are valued less than a concentrated company focusing on one type of product. This consolidation lets the business focus on one kind product, allows for the hiring of experts and creates an environment of innovation. All of this is attractive to a buyer.


Clean and easy to understand financial statements drive up the value of your business. A buyer will want to see these documents and it reflects well on you if the documents are well taken care of. This tells the buyer that you care about the bottom line of your business and it gives them a very clean understanding of the company’s financial situation. Transparency breeds trust and drives up the value of the transaction.


You may also choose the right selling structure to avoid tax consequences. The less tax that you have to pay means the more money in your pocket at the end of the day. The selling structure is something you and a broker can agree on and it directly affects the bottom line.


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Should I Sell My Company?

Should I Sell My Company?

The American economy relies on small businesses with determined entrepreneurs. These people work hard and toil bringing their vision to life. Some people work hard for many years to build a business from the ground up and, for a select few, there is a light at the end of the tunnel. The dream is to make a successful business that can be sold. That is the ultimate reward for all the hard work, ingenuity, vision and creativity it took to build the business.


There is a lot that goes into the decision – Should I sell my business? It is much more complicated than just taking an inventory of everything the business owns and selling it. You want to sell the business at the right time for the best price while weighing the tax consequences and projecting the future earnings of the business.


The first thing that needs to be considered is a fair price. You’ll need outside help for this because you are too close to your business. Plus, there are a lot of intangibles at work. A third party professional could give you a very good valuation because they see things that you don’t, or you run the risk of setting the price too high because of your love for your own business. A third party will be objective and that is crucial.


There are serious tax consequences in selling a business and those consequences depend on what city, county and state the business is located. There are also a ton of benefits in selling the business with the right selling structure. The right type of selling structure can isolate you from serious tax liability, and a third party should be able to help you out with these selling structures.


The next thing to consider is if you want to make your company as pretty as possible to buyers. It is like selling a car or house. You want the place to look as nice as possible. This includes getting all the paperwork in order; organizing it clearly and making it accessible. This takes a lot of work and must be done well ahead of time.


The next steps are marketing and negotiating, which are time consuming. It is recommended that you get a fair valuation of your company and then determine if all this work is worth it. If it is, then congratulations on building a successful business.

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Positioning A Business For A Sale

Positioning A Business For A Sale

It is time to sell the business you worked so hard to create. All those long hours spent working while nobody was looking are about to pay off. This is your labor of love, so you want the sale to come off without a hitch. There is a bunch of ways to position the company for a sell, but it is important to do them well out ahead of time. Some estimate that it takes up to two to four years to sell a business. Stay on top of the trends and plan ahead to sell that business for maximum profit. Here are a few other things you can do.


The first thing that needs to take place is a fair business valuation. It is easy to set the price of your business too high, which will send buyers running. You love your business, after all. A good third party company can come in and take a deep inventory and give you a fair figure. This selling price is now the goal moving forward.


The next step is to prepare an aggressive business plan for the next few months to a year while the business is being sold. This should include some innovation and new products if applicable. Buyers want to see that a business is humming right along with growth potential when they come knocking, so give them a show.


During this time your business’s profits should be maximized. This step is much easier said than done, but if an aggressive business plan is in the works then the business should be moving right along. Another way to maximize profits is to cut unneeded assets. This can be tough as a small business owner because unneeded assets can come in the form of low responsibility employees. Selling physical inventory that isn’t being used is another way of scuttling these assets. It also cleans up the property to make it looks nicer.


Work really closely with people in key roles inside the business. Get a tax break and send them to classes if you can. These people are now assets to a buyer. The better they are at their jobs the more attractive the business will be when it comes time to sell. Plus, it reduces the stress of the buyer because they know you will leave people behind who know how things are run. There are plenty of things you can do to position your business for a sale.


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How To Show My Company

How To Show My Company

Selling a company can be a lengthy and complicated mission, but it is not so unlike selling any other item, such as a car. When it comes time to sell the car you want to make it look as attractive as possible. All those work receipts that you paid no attention to in the past are now crucial. You pull them out, organize them and straighten out the creases. Then a hose is turned on the car and a good washing is in order. The idea is to make the object as attractive to buyers as possible.


Selling a business is a little more complicated and there is plenty of preparation involved. The first thing to consider is the property management. You want to prove to the buyer that the property is reliable whether you own the land or lease it. In the case of a lease, it is a good idea to obtain a lease that is attractive to the buyer and get paperwork proving it. This is like having a clear title to the car you are selling. A buyer is unlikely to purchase a car without the title.


The next thing a buyer will want to see is the financial paperwork. The buyer is going to want to know the exact cash flow that is going in and out of the business. This takes a little bit of preparation because, as a casual business owner with her own system of accounting, this paperwork might not translate. You’ll have to get all this reworked, perhaps by an accountant or a third party broker, so that a potential buyer can easily understand them.


There is a whole part of showing your business that has nothing to do with your business right now. It is a really good idea to get a third party to do an objective evaluation of growth potential. This will give you a good idea to to what you business might make in the future, which could affect the price. The buyer is more likely to buy a business that will grow. This helps both parties.


The last thing to consider is the physical appearance of the business. It is likely that the buyer has his own idea of what the property will look like when he takes over, but you want it to look as good as possible anyway. A property that looks good is more likely to sell.


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How To Sell A One Man Business

How To Sell A One Man Business

There are a lot of people out there who make terrible employees, but make really great small business owners. This person’s vision is so unique, narrow and focused that the business only works as a one-man show. The value of this type of business can be great because there are no employees to think about and the business and its reputation tightly controlled. A business like this could be a very attractive buy for a business person who is interested in diversifying their streams of income into the future. Exactly how is a purchase like this done?


One-man businesses work the same way as any other business out there. There is cash flow in, expenses, inventory, and value of property and so on. But a one-man show is unique in that the business relies heavily on that person’s relationships and reputation. That person has a very narrow, unique set of skills that other people are willing to pay a lot of money for. Buying a business like this can be complicated because the asset that you want to buy is the owner/operator of the business.


There is a way around this however. The analogy is that the owner/operator has a very unique athletic training facility that teaches a special skill. The clientele love the operator and the skills it takes to run the business are unique to the operator. That is why an exit term has to be negotiated.


You have to expect to stay on with your business a year after you sell it to aid in the transition with the buyer. The buyer can be present during the operation during that year or the buyer may hire an employee to be present. This new person must get comfortable with the operation and become familiar with the clientele. The clients will then become comfortable with the new owners as the old owner fades out of the picture.


Setting this transition period up can be mighty difficult. It is important for this transition period to have very clear rules to avoid resentment. The old owner will now be working for someone else in the business that they had created, so a very clear list of expectations needs to be drawn up before the sale is complete. A third party should be involved to mediate this negotiation. An experienced broker can mediate a deal that is fair for everyone involved while avoiding resentment.


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Creating Value With No Investment

Creating Value With No Investment

There are all sorts of reasons that people start their own business. It is funny, though, because very few of these people create a business to make a lot of money. Some people just can’t work for others and they are lousy employees. Others have a social mission in mind and others just want to create something.

Then there is the reality of things. Business speaks a different language and that language is finance. The business needs to make money in order to survive, but what is the true value of a business? Especially if the business was setup by someone not interested in money? That person might be creating all sorts of value for her business without even knowing it while others are determined to create value for their business but can’t. There is a variety of ways to create value, but it should be understood that value is in the eye of the beholder.


The reputation of the seller is a huge way to create value. Say there is a local organic produce seller in a neighborhood that loves this type of product. That owner is beloved by the neighbors and the grocery store is an essential part of those people’s lives. The books might say that this business only generates X amount of revenue, but the owner creates more value. The owner can sell the business for quite a bit more because the grocery store and her reputation are essential to the community. Now, if a buyer bought the store and franchised it to a different location, then the separate location wouldn’t have the same value. Being a respected owner can drive the price of your business through the roof.


Intellectual property is another great way to drive up the value of a company. Say you start a school for a very rare skill. There is nationwide demand for that skill and you are one of only a few people who can teach that skill. That intellectual infrastructure is tied to the company. It is rare, unique and worth a lot of money even though it didn’t cost you anything to make it. You can drive up the value of your company with innovative intellectual property. Your proven systems or ideas can really jack up the price of your business and put you in the driver’s seat when it comes time to sell. There are intangible ways to increase the value of your business.


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Common Mistakes When Selling A Business

Common Mistakes When Selling A Business

Making it in business is really tough. Long hours are poured into the making of the business and it really is a thankless job. If you figure the hourly rate you received when starting your business, it would be dismal. Now the business is thriving and it may be time to capitalize on all that hard work. You won’t have to put those long hours in anymore. You can just take your lump of cash and walk away. There is a lot of planning that goes into selling a business and you have to be able to navigate the pitfalls. Here are the most common mistakes made when selling a business.


Most people do no find the right representative for their business. It is crucial to find a broker that is hungry and shares the same values as your business. After all, the buyer will do most of their interaction with this person and it is good to convey what the business stands for through this intermediary. Don’t just fall for the first high priced broker that you meet with.


A lot of people see the opportunity to sell pop up and they move quickly to get it done. This could be a mistake. Often times the move is so hasty that the important of window of opportunity passes them by. They don’t get the best price and the new owners may not be desirable. It is good to plan way ahead of the purchase. Get a valuation for the business and try to plan two to four years ahead of time. It is good to always be ready.


Most people don’t think about promoting or marketing their business and this can be a mistake. They just expect some interested party to walk up and offer a great price with benefits. Selling a business is like selling anything else – you want to drive up competition. Put the word out so that you get the most buyers involved. Hopefully a bidding war starts to drive up the price.


Negotiations walk a fine line. Both sides are trying to broker the best deal possible for themselves and a lot of business owners are timid or overconfident. Some take too little money for all their hard work and others scare buyers away with a really high price. It is important to get a fair valuation of the business before trying to sell so a good price can be found.


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