How to Value Your Business and Prepare It for Sale
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By Courtney Rosenfeld
How to Value Your Business and Prepare It for Sale
Letting go of a business can be a challenge when you’ve invested time and energy to build it from scratch. Your persona may be so intertwined with the business that selling it seems impossible. But you have limited time and energy reserves. Therefore, it’s important to appreciate the need to pass on your business at the right time, to the right people and for the right consideration.
Signs That It’s Time To Sell
Many people don’t know when they need to sell a business unless an external party, such as a mentor, points it out. However, it’s important to remain open to certain cues. For instance, when you’ve professionalized the business by hiring the right people, you may no longer need to be there to supervise daily operations. If the business’s bottom line is good and future cash flows are projectable, you can sell the business for good value.
In other situations, the business may outgrow you. It may require expertise that’s beyond your ability for it to maximize its potential. Letting go of the business allows the injection of new ideas and energy to power the next stage of growth.
Preparing the Business for Sale
No matter the reason for selling the business, you want to get the maximum compensation for the value of the business. There are several ways to determine the value of a business:
- Assessing historical revenue and profits
- Projecting and discounting future cash flows
- Calculating the net assets of the business
- Valuing the size of the business’s current market share
The various approaches are likely to yield different valuations for your business. You may need to consult an expert to help you choose the most favorable approach. For instance, capital-intensive businesses may favor the assets approach, while a business in a fast-growing industry may find a future cash flow valuation approach to be better.
Business Paperwork
Regardless of the approach, proper records of the business are paramount. Business records are important for tax purposes, and they help prospective investors and buyers assess the true value of the enterprise.
If you don’t have comprehensive business records, start proper bookkeeping practices today. You can improve your internal processes through simple-to-use accounting tools. Sending your customers invoices for their purchases helps you gain insight into your sales volumes and trends. A free online invoice generator allows you to quickly customize an invoice for your business from pre-made templates with your own photos, logo, and text.
When preparing the business for sale, ensure your legal paperwork is in order. Have your Articles of Incorporation available, and renew all your licenses. If you have ongoing contracts with vendors and customers, ensure they’re in writing for the sake of business continuity.
Preparation Helps You Get Fair Compensation
Selling your business requires preparation, and completing the process may take more than a year. Talk to the right consultants to determine a provable valuation, and get your paperwork in order to help expedite the valuation and sale process.
Visit Bay Area Business Brokers for more information on how to prepare to sell your business. 408-246-3846.
Courtney started Gig Spark to be a resource and the first step for people who are looking to join the gig economy, either to supplement their income or as a way to fulfill their dreams of becoming an entrepreneur.
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Using Data to Improve Your Business Across the Board
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By Cody McBride
Using Data to Improve Your Business Across the Board
More and more companies of all sizes are using data analytics these days. They have long proven to help managers and teams make critical decisions and position their businesses for long-term success. By utilizing the valuable data at your fingertips, you can gain a better understanding of your company dynamics, your relationship with the market, the risks in front of you, and much more. So, what is data analytics, and how can it help your business reach the next level? Below, Bay Area Business Brokers lays it all out for you!
What Is Data Analytics?
Data analytics describes the process of using different approaches to analyze data. Some of the data is predictive and others quantitative, but all business data can provide valuable insight into your operations, strategies, and growth. Essentially, using data analytics effectively can help your company accomplish goals and make better decisions.
You can use data analytics to compare past data with current data, identify market trends, and determine what outcomes are likely to occur and when. Data analytics can also help you determine the steps your organization needs to take in order to reach your overarching mission, ultimately helping you to make profitable judgments.
Every tool, individual, and business generates a plethora of data each day, meaning you must learn how to organize your data sources before you analyze them. Many business owners use cloud storage and various software and tech tools to manage data.
Marketing Strategy
One way data analytics can benefit your business is that it provides insight into how you can improve your marketing campaigns. Data can help you decide on your target market, customer demographics, and the primary reasons people buy a product or service. It can even help you learn seasonal patterns so that you can adjust your promotions accordingly.
Figuring out your target market is one of the most critical aspects of running a business, and once you’ve done it, you will need to determine when and where consumers will be likely to discover and purchase your product or service.
Consumer Trends
When analyzing data through a business lens, you can gain in-depth knowledge of how consumers are using the products or services of your business and the market in general. For example, a streaming service company might use a predictive analytical model to determine how to encourage consumers to stick with them for the long term. Analytics can show these companies how to make their marketing strategies more impactful.
If you run an e-commerce company, you might use data analytics to identify which visitors remain on your site, how long they stay on each page, and which visitors return later on.
Risk Management
Every organization must understand risk in order to make good decisions. One of the most valuable aspects of data analytics is that it can help you identify and manage virtually all risks regarding your business.
When used effectively, data analytics can help you avoid crises and optimize reactions so that you resolve crises as effectively as possible. This is because analytics provide insight into the most likely scenarios of each potential decision. By improving your risk management practices, it can enhance the overall management of your business.
Exit Strategy
If you are developing an exit strategy for your company, any expert could tell you that growing your business beforehand is one of the best approaches for ensuring a profitable sale. The insight provided by data analytics could be one of your most significant assets in helping you make decisions that build your business. Furthermore, working with professionals can help you handle any other tasks for preparing your exit plan.
The value of data analytics is becoming more known across industries every day. When harnessed correctly, analytics can help your managers and teams make critical decisions and lay a foundation for flourishing in the coming years. Consider the information and advice above to develop a plan for incorporating analytics into every aspect of your operations.
Are you interested in buying or selling a business in the Bay Area? Contact Bay Area Business Brokers today! 408-246-3846
Author Cody McBride’s love for computers stems from high school when he built his own computer. Today he is a trained IT technician and knows how the inner workings of computers can be confusing to most. He is the creator of TechDeck.info where he offers easy-to-understand tech related advice and troubleshooting tips.
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How Sellers Can Boost Their Levels of Success
Many buyers view a publicly-held company as virtually being an open book with at least a modest level of transparency, whereas privately-held companies reveal much less about their inner workings, financial, and otherwise. Of course, this means that buyers of privately-held companies are left with no choice but to dig through whatever information is available in an effort to determine if a valuation or price indeed reflects reality.
Comparing Publicly and Privately Held Companies
Determining the price on a privately-held company is typically more time-consuming since privately-held companies don’t have to deal with audited financial statements. But why do most privately-held companies typically forgo the process? Audited financial statements are expensive, and it is this expense that often prevents companies from going public. A publicly-held company is expected to reveal significantly more information, including often sensitive financial information.
What Sellers Can Do
If you’re a seller, you can take steps to make the process a bit easier for buyers. One step is to work closely with your accountant in an effort to ensure that the numbers are not just accurate, but are also presented in a concise and easy to understand fashion. This move serves to boost trust between buyers and sellers and, in turn, can increase the chances of selling your business.
Determining value is another area where sellers of privately-held companies can take steps to assist buyers in determining price or value. Sellers should consider opting for an outside appraiser or expert when it comes to determining the value of their business. The opinion of an outside expert clearly carries more weight, and using an outside expert is yet another step that sellers can take to boost overall trust with buyers.
Establish Your Bottom Line
Another key step is for sellers to establish their wish price. The wish price can be thought of as what price the seller would ultimately like to receive. It is also helpful for sellers to know well in advance what their lowest possible price for their business would be.
When establishing a price, there are several areas of the business where sellers can expect buyers to pay special attention. Here are a few areas that buyers are likely to explore:
- Size and scope of customer base
- Needs for capital expenditures
- Overall stability of the market
- Stability of earnings
- The general landscape of competitors
- Businesses relationships with suppliers
As with all transactions, the marketplace will have the final word regarding the sale of any business. Sellers should expect to receive a price somewhere between their asking price and their lowest price. But taking the right steps throughout the process can definitely make the process go more smoothly and boost the chances of success.
Copyright: Business Brokerage Press, Inc.
The post How Sellers Can Boost Their Levels of Success appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Not All Buyers Are Created Equal: The Mindset of the Serious Buyer
Just as every person is different, the same invariably holds true for buyers. No two buyers are the same. Further, no two buyers have the same mindset, emotional makeup, or approach to business. The simple fact is that buyers opt to buy businesses for a very wide range of reasons. The bottom line is that it is up to business brokers and M&A advisors to find serious buyers so as not to waste everyone’s time. In this article, we will examine how we zero in on serious buyers.
A serious buyer, one that wants to achieve success and isn’t just window shopping, will want to understand both the business they are considering buying and the industry as a whole. Consider this rough analogy for a moment. Someone serious about winning a game will work to understand the rules before jumping in and playing. You’ll want to look for a buyer who wants to understand the strengths and weaknesses of a business. He or she will also want to comprehend the strengths and weaknesses of competitors as well as potential industry wide problems both now and in the future.
Savvy business people realize that wages and salaries make up a huge percentage of the typical business’s operating cost. A serious buyer will endeavor to understand not just the wages and salaries of employees, but also additional related costs. These can include retirement related costs, the cost of training new employees, the rate of employee turnover and more. Smart buyers are looking for stability throughout the business, and that includes its employees.
The kind of buyers you want to attract are the ones that are not just “thinking about buying” a business. You’ll want to only deal with buyers who have carefully thought through what it means to buy a business. A key aspect of buying a business, as simple as it sounds, is to fully understand what is being sold. For example, serious buyers will dive in and understand capital expenditures. They will also examine and evaluate machinery and equipment so that they understand what kinds of equipment might need to be repaired or replaced. Replacing and repairing equipment can mean substantial costs. That’s why quality buyers can be expected to evaluate all equipment extremely carefully.
Buyers who understand what it means to buy a business will even go beyond evaluating the stability of employees and the state of machinery and equipment. You can expect a serious buyer to want to know if there are any environmental concerns, they will check and evaluate the lease, and they will want to inspect the state of all buildings. They will want to know who the key clients and key suppliers are and determine if those relationships are stable or if they put the business at long term risk.
At the end of the day, the kind of buyer that you’ll want to work with is a buyer who is proactive. Quality buyers will be accessing every aspect of a business to determine its long-term viability. A buyer who goes far beyond “kicking the tires” is exactly the kind of buyer you want.
Copyright: Business Brokerage Press, Inc.
The post Not All Buyers Are Created Equal: The Mindset of the Serious Buyer appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Important Factors to Consider in Your Lease
Owning and operating a business can be rather demanding and that means from time-to-time details can slip through the cracks. All too often, businessowners don’t fully comprehend their leases and this can lead to a variety of problems. For example, if your business location is a key part of your success, it is incredibly important that you are well aware of all the essential points in your lease. Many businesses, ranging from restaurants and service businesses to retail stores, can be very location sensitive.
Don’t Let Key Details Slip by You
Regardless what kind of business you own, it is vital that you understand every aspect of your lease. You may even have to get an attorney involved to help you understand the implications of the minor points. A failure to do so could translate to the failure of your business.
The Length of Your Lease
The length of your lease tops our list of lease related factors you need to understand. While there are many variables that will affect you, in general, the longer your lease the better. It should come as no surprise that a longer lease gives your business an increased level of stability.
Exit and Exclusivity Clauses
If you are negotiating a lease, it is prudent to include an option for getting out of the lease. Just as having a longer lease provides you with greater flexibility, the same holds true for being able to exit your lease if the need arises.
A lease is not a one-dimensional document, just as your location is not one-dimensional either. The location in which your business is located matters. If you are signing a lease to locate your business in a strip mall or shopping mall, you should try to have written into your lease agreement that you are the only business of your type that will be located in the mall. After all, the last thing you want is to see a similar business opening up nearby.
Transferring Your Lease
Negotiating a long lease and having a way out of your lease are critically important, but so is being able to transfer your lease. At some point in the future, you may need to sell your business. For this reason, it is in your interest to have a clear understanding of how, and under what circumstances, you can transfer your lease to a new owner.
It is important to discuss the possibility of selling your business with the landlord before going to market to understand if the lease will be able to convey. While the landlord cannot restrict the sale of your business, you could get left holding a personal guarantee in order for the lease to remain in place for the remainder of the existing lease term. Then the new owner would be left to negotiate the lease renewal on their own.
Assignment of Responsibilities
Rounding out our list of key factors to consider for your lease are what you are responsible for and what the landlord is responsible for handling. If you as the business owner are to shoulder responsibilities related to the property, then those responsibilities should also be clearly outlined in the lease.
There is no doubt there are many variables involved in owning and operating any business. The physical location of your business should be among your top concerns. You should do everything possible to understand your lease. When signing a new lease, try to negotiate a lease that will be as helpful to you as possible.
Copyright: Business Brokerage Press, Inc.
The post Important Factors to Consider in Your Lease appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
3 Warning Signs for Sellers to Be Aware Of
If you’re getting ready to sell your business, you’ll want to be on high alert for potential warning signs that could potentially derail the deal. Of course, time is of the essence when it comes to finalizing your deal. Why spend time negotiating with a buyer who is either not really interested or is simply not qualified to buy? Let’s take a look at some of the top buyer warning signs.
1. Lack of Buyer Experience
When it comes to individual buyers, you’ll want to see if they have experience in your industry. If a prospective buyer is not knowledgeable about your business, they might initially seem very excited but then get cold feet once they dive in and learn more about the industry.
The same can be said for a potential buyer who has never purchased a business before. If you’re dealing with a newbie, you’ll want to feel confident that this individual understands the ins and outs of buying a business before you dedicate too much time to their deal. After all, the process of buying a business can be long and complicated. Inexperienced buyers might find that they no longer want to continue progressing once they get a better idea for what is involved.
2. Undisclosed Financial Information
Along similar lines, you’ll want to work with a buyer who is open about their financials. If you are denied access to financial statements, you will have no way to verify that this buyer is actually equipped to purchase your business.
3. Early Communication Issues
Another common red flag to watch for is that a company says they are interested in buying your business, but the company’s actual decision makers are uninvolved in the communication. If a company is legitimately interested in purchasing your business, you will be communicating with a key player like the President or CEO.
Protect Your Interests
When your business is on the market it is a very important time to make sure that things stay consistent. If a legitimate buyer sees dips in sales or quality of your offerings, it could put a future deal on the line. That’s why you will want to protect your time by not wasting it with buyers who are not a good fit or who lack a high level of interest. Along the way, be sure to trust your intuition. If you sense something might be “off” with a potential buyer, this might very well be the case.
When you work with a business broker or M&A advisor, it will offer you a high degree of protection against falling into a rabbit hole when you should be focusing on keeping your business running as successfully as possible. Your brokerage professional will carefully vet buyers to ensure that they are actually viable candidates.
Copyright: Business Brokerage Press, Inc.
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