The answer to this question will depend on many factors, and it's also important for the business evaluation to be as precise as possible. Why? If the business is overpriced it may not sell, but at the same time you don’t want to leave any money on the table.
First and foremost, when it comes to selling your business, it’s important to understand the different types of value a business has. A business has its book value, liquidation value and fair market value. Any accountant can easily calculate book and liquidation value.
Fair market value is the most important when deciding the right listing price for your business. It is also much more difficult to calculate and can be accomplished only by an experienced professional (like a business broker) who is skilled in business evaluation.
At Infinity Business Brokers our team will be able to help with fair market value. We take into consideration the current business market situation, review financial documentation, interview the owner/owners, study the business plan, look at industry statistics and consider current marketing and distribution. We end up producing a comprehensive report with the results of our analysis; containing sold comparables, review against industry standards and recommendations for improving the value, if any. We also take into account hindrances like aged equipment, a difficult to operate business, laws to prevent certain business practices, documentation and many other factors while we help you decide on your listing price.
What are some other aspects that help determine fair market value? Here are a few:
Financial history
The team at Infinity Business Brokers will review financial documentation for the last 3-5 years, when available. This information will show trends in revenue, profitability and can be compared with industry average indicators.
Business plan, written or verbal
How close does the business plan reflect actual performance? How aggressive and realistic is it? Are all of the products and services still as desirable as planned?
Owner replacement
What would happen if the current owner is no longer with the company? Will it immediately hinder business, slowly lose its business or continue running without major problems? How easy is it for the buyer to replace the owner? This is a very important aspect for the majority of business buyers, and as such they would pay a premium for a business with a low-risk transition.
Target buyer
The value of a business greatly depends on the buyer. A certain buyer may see only a collection of discounted equipment (liquidation value), while another may find a strategic connection with their existing business and recognize add-on value in created goodwill.
Sourcing and customers
How diverse are supply and distribution networks? What happens if one of the major players leaves? Does the company have a uniquely targeted distribution network, or a hard to repeat distribution concept?
Ready to find out what your business is worth? Contact our team for a consultation today!