1. Is a Valuation really necessary for all businesses?
- If you have been in business for less than two years, or have not maintained a good system of book keeping, a Valuation for the purpose of selling the business is useless.
- However if you are devoted in your book keeping and looking to improve your business, a Valuation report is extremely helpful. A formal valuation will provide you with a price range that you can expect to realize in the marketplace and will greatly increase the confidence a buyer will have in buying your business and also make the due-diligence process much easier.
2. What are some of the key benefits of having an updated Valuation in marketing my business?
- Each business is unique and has its unique 'issues". The best way to bring these issues to surface is to do a deep analysis of the business. There is no better way than a Valuation Report to accomplish this, because the worth of the business is based on the numbers and internal factors unique to your business. Some of the issues may be minor problems that can be corrected immediately, and others can be worked upon and fixed over time. Yet some may not be fixable but a credible explanation can be derived. The goal here is to bring out the 'good, bad and the ugly' so all material facts are disclosed and used to ascertain a 'fair market value' for the business.
- Valuations are done taking into account the past three years of financials, and lays down the narrative so the prospective buyer can base his/her decision on the strengths, weaknesses, and trend of the business performance. Most deals fall apart during due diligence. As a seller you rather the Buyer has full information on the facts prior to the Asset Purchase Agreement being in place, instead of having to explain it during due-diligence and give the Buyer cause for concern.
- Most small businesses have non-business (personal, tax related accounting) expenses in the financial statements. By adding them back and reconciling the differences with the Tax Returns backs the owner's claim of the "Seller's Discretionary Income (SDE) in a plausible manner.
- If the books match the Tax Returns, the likelihood of qualifying for a SBA loan increases, thus increasing the probability of selling the business in a short period.
3. What is a Business Valuation? Is that the Price that my business will sell for?
- The Valuation Report calculates the weighted Cash Flow for the recent 3-5 years and takes into account various factors to come up with a multiplier to come up with a 'fair market value'. The purpose of the valuation is solely to provide an independent opinion in order to assist the business owner in offering the subject business for sale. Price is at which a business would change hands between a willing and knowledgeable buyer and a willing and knowledgeable seller.
4. Do you accept Third party Valuations in listing the business?
- Yes, as long as the Valuation report is up to date and is credible. (see # 6)
5. "I paid $15,000 to another business broker and was told my business is worth almost $1,000,000 and in your opinion its worth only 20% of that amount", or "A CPA charged me $5,000 to tell me my business is worth $600,000 yet in your opinion its worth only $150,000"
- There are many questionable "brokers" or 'Valuation Experts' that will engage unsuspecting business owners by Telephone Marketing or invitation to Seminars. They will pressure you into paying an exorbitant upfront fee by convincing you that your business is worth $$$$. In both instances the high valuation was given to justify the high fees. In the first case the phony Broker applied high pressure tactics to induce you into writing the check, but had no intention to sell the business and never followed up his promise with any action.
6. I'm not looking to sell my business. Can I still hire you to do a valuation?
- Absolutely. In fact we encourage you to get an annual report from us. After the initial valuation, our year-end update is free of charge and the addendum for each following year is only $295. Our goal is to build up a long term relationship with local businesses like yours so when it comes time to put your business on the market, you will give us the opportunity to sell a business that has good books and a track record. Upon the sale of the business we will gladly deduct from our commissions, all Valuation fees that you have paid us over the years.