So.. You’re thinking about selling your business–CONGRATULATIONS! You’ve worked hard, you’ve put in the hours, and you’ve faced the hard decisions that come with business ownership; Now it’s time to reap the benefits of your hard work. The “Exit Strategy” is a critical stage in your business plan so you must make sure you have the right information, tools, and guidance so you avoid the following costly mistakes:
- Leaving money on the table
- Wasting time and frustration with unqualified buyers
- Trying to sell your business without a broker and becoming frustrated with the time lost from your business
- Listing your business with a poor performance broker
These are all reasons why it is crucial that you choose a high quality, seasoned professional to provide you with the proper knowledge and guidance throughout this process. You will have tons of questions and concerns about and throughout the process but do not worry, we are here to help.
At Empire Business Management we’ve represented thousands of clients in the sale of their businesses. We have extensive industry expertise, knowledge of local markets and lending, comparable past sales, and an extremely strong network of buyers actively searching for their next investment. We are here to share our knowledge, our tools, our network and provide you with the guidance you need in order to lead you to a successful transaction.
SO WHAT DETERMINES THE VALUE OF MY BUSINESS?
One of the most important and first steps in selling a business is establishing a proper price. To be quite frank, without a reasonable or realistic asking price you will not be able to sell your business. Additionally, the impact of improperly pricing your business will play a huge role in multiple ways and at different stages of the transaction. For example:
- A buyer may uncover discrepancies in the asking price during due diligence, bringing the transaction back to further negotiation, or even complete termination (more time wasted).
- If a business is priced too high, it simply won’t attract buyers. If priced too low, the seller isn’t realizing fair value and this may draw red flags for potential buyers.
- Lending institutions will refuse to provide financing which will lead to frustration to all parties, and if a buyer can’t get financing they will not be able to buy your business (more time wasted).
Ultimately, the right approach to pricing will depend on the type of business, the size and complexity of the business, your role in the company, the risk associated with purchasing your business, the business’ cash flow etc. etc.
Typically, buyers purchase a business based on the business’ cash flow. The more cash flow there is, the greater chance the buyer will be likely to pay. Cash flow can be expressed in quite a few ways, typically as Net Income, Seller’s Discretionary Earnings (SDE), or Earnings Before Interest, Taxes, Depreciation, and Amortization. SDE or EBITDA are the most commonly used basis for establishing a selling price.
The truth is there quite a lot of factors that play a role in establishing a purchase price and we understand how confusing (and intimidating) it can be to approach this process. That is why we believe that working with an experienced professional business broker like us will truly give you an advantage at pricing your business to sell.
Our recommendation is to get in contact with us as soon as possible. It is never too early to begin thinking about your exit strategy. Reach out to us for a free consultation and we’ll provide you with an idea of what your business is worth, as well as help you find ways to maximize value BEFORE selling your business.