Starts with Trust, trust in the information you provide the target buyer.
The unique nature of Joe’s – Market Driven Valuation
Valuation methods for small businesses can vary depending on factors such as size, market conditions, and buyer expectations. It involves a mix of art, science, experience, and knowledge of the industry. To begin the valuation process, a thorough review of the company and industry is conducted. This includes analyzing the financial statements (P&L and balance sheet) to identify positive aspects of the business.
The core of the valuation process lies in understanding the buyer profiles. Different buyers may have different expectations and preferences, so the appropriate valuation method is chosen based on their specific requirements. Multiple methods may be employed in a market-driven valuation approach to identify a target buyer who recognizes unique opportunities that other buyers may overlook. The goal is to maximize the value of the business by aligning it with the perspective of the most suitable buyer.
Traditional Methods Used to Value Your Business
Furniture, fixtures, equipment and inventory have very little to do with the value of the business, but it shows the Buyer real value which should help them create “cash flow.”
The real cash flow, or adjusted cash flow, is calculated starting with the profit and loss statement; adding back any expenses you would get some benefit from, if you were the Owner.
– Travel, meals and entertainment
– 401K, IRA
– Car Payments
– Health Insurance, life insurance, spouse’s and children’s as well.
Difference in payroll, rent, location and competition need to be accounted for in the sale price.
Three returns to look at and compare with other investment opportunities available are:
– Money/Time/Risk
Gathering data on a particular industry, giving you general information on sales, expenses and costs involved with valuing the business.
Ask yourself, “If I had to start from scratch, how much would it cost to duplicate this exact business?”
– Rule: If the business has been operating successfully in the same location for more than 5 years, chances are you will spend a lot more cash attempting to duplicate that business.
FAQs
We take considerable time and research – Understanding the different types of buyers associated with your industry, this can be crucial when valuing or planning to sell your business.
Here are six common buyer types we consider:
These are companies seeking growth through acquisitions that align with their core strategy. Selling to a strategic buyer may result in a higher sale price, but it could also lead to job redundancies and loss of brand identity.
Private equity firms invest in companies with the goal of maximizing growth over a specific period before selling them for a return. They bring financial resources and expertise but focus on short-term profitability.
Family offices invest the wealth of a single wealthy family, often with a long-term perspective and conservative portfolios. They may offer industry guidance and direction but typically offer lower sale prices compared to private equity or strategic buyers.
Holding companies primarily exist to own other companies and generate revenue from the dividends and earnings of those companies. While selling to a holding company can provide a straightforward way to cash in equity, it also means involving more stakeholders in decision-making.
Search funds consist of an individual, usually backed by a team of investors, looking to buy a business and take over operations. Selling to a search fund can inject new energy and expertise into the business, but it also involves some risks associated with inexperienced buyers.
Selling to employees through an employee-stock ownership plan (ESOP) or leveraging an ESOP can allow the business to maintain its course in the absence of the owner. However, ESOPs come with administrative complexities that may impact future development
Understanding these buyer types can help us tailor your sales approach and find the right match for your business. Each type has its own priorities and Motivations, so it’s essential to consider their goals and align them with the most suitable mutable.
Joe’s proven process for selling small business:
To sell your business above the current market value, it’s crucial to have a clear understanding of your business’s current state. This involves objectively assessing both the positive and negative aspects. It’s natural to feel concerned about potential problems or issues within your company, but there’s no need to worry. Our team specializes in marketing from your company’s voids and weaknesses.
Buyers are unlikely to purchase a business unless they believe they can improve upon it. Instead of avoiding or hiding your weaknesses, we will help you embrace them. By defining these weaknesses for the target buyer, we can present them as opportunities for the buyer to envision themselves overcoming challenges and owning your business.
Before diving into the weaknesses, let’s start by highlighting the positive aspects of your business. This will allow us to showcase its strengths and potential, attracting potential buyers who recognize the value and opportunities it offers.
I understand and respect your perspective on the importance of hiring an experienced broker when selling a small business. While it’s true that some business owners have successfully bought and sold businesses without a broker, based on your experience, you believe that engaging a broker can lead to a better sale price and favorable deal terms.
You emphasize that hiring a broker is not only about finding a buyer but also about navigating the negotiation process and structuring the deal effectively. The value of a broker becomes evident after the closing, as business owners may realize they left something on the table or encounter difficulties if the deal falls through.
You stress that closing the deal, which includes getting the target buyer to commit and provide the necessary funds, is the most challenging part. By following a step-by-step formula and paying attention to the details, you believe business owners can increase their chances of successfully closing the deal.
Overall, your perspective highlights the significance of experience, negotiation skills, and attention to detail in the process of selling a small business, and you believe that hiring an experienced broker can greatly contribute to achieving a successful outcome.
Valuing a small business involves considering numerous factors.
However, we emphasize using a team approach & the importance of using their Step-by-Step Formula to identify the right target buyer. They caution against dealing with buyers solely interested in a multiple of sales or cash flow, as this approach can significantly reduce the business’s value, referred to as “Valuation Slaughter” by Walter Bergeron.
Their approach focuses on presenting the target buyer with comprehensive details about key employees, intellectual property, proven systems, marketing success, innovative ideas, and the seller’s experience in problem-solving. They highlight future opportunities, a loyal client base, valuable supplier relationships, and the company database as key selling points.
Our teams’ aggressive efforts are unique to the industry. Our strategy involves actively seeking out target buyers instead of waiting for them to come forward. By doing so, they aim to maximize the sales price of the business. The emphasis is on showcasing the business’s strengths, potential, and unique advantages to attract the most suitable buyers.