Even if you stay on with the business, you don’t have complete control over how new ownership runs the company. If the business does well, you get paid. If business drops, you don’t.
Imagine a buyer has offered you a six-multiple on EBITDA in their initial letter of intent. Unfortunately, you don’t have clean financials that have been tested and scrutinized by an outside party. Once the buyer vets your financials, they uncover some adjustments they don’t agree with and revenue that was accounted in the wrong period.
As you build your company’s strategic plan, consider not only how to drive growth, but also how to reap long-term financial rewards. Most of your personal wealth is likely tied to your business. This means that maximizing your business’s value ensures an optimal return on your investment, helping you meet your financial goals.
Imagine your kids going to school, kindergarten through high school, without ever receiving a report card. As a parent, how would you know when they needed additional help? If they were ready for a new challenge? Whether you should help them prep for college or consider alternative training?
At the end of the day, it would be hard to make well-informed decisions. Your kids would go to school and put in the time every day, and you’d have no idea if they were doing D or A-level work.
Lower-to-mid-size businesses typically go to market without a preset asking price. You will set an internal benchmark with your M&A advisors, but we won’t publish or discuss your value expectations with potential buyers.
There’s a difference between generating cash and building business value that someone will be willing to pay for. Here are a few ways to boost your future purchase price and increase your business valuation:
As you build your business, pay attention to what a future buyer will want. They’re looking for well-diversified customer groups where the loss of one account won’t have a devastating impact. Do the hard work of diversifying, and you’ll increase your future business value.
Recently, we did an estimate of value (EOV) for a company, calculating that it would sell for around $8 million or $9 million in the current market. It’s a nice business and I think that number is achievable. We might even get a bit more with a strategic buyer.
DealCoach's Estimate of Value (EOV) provides owners with a realistic understanding of what the market would most likely bear for their company in today’s marketplace.
If you’re one of the several million baby boomers thinking about selling their company in the near future, you might be wondering how long the whole process will take and what to expect along the way.
If you have a focused advisor who is working the deal, expect two months of initial prep, 30 to 120 days for marketing, one month for negotiations, and roughly 60-90 days to handle due diligence, financing, and legal. Here’s the process in more detail: