In our last entry, we discussed the process of getting your business ready for sale. This week, we’re addressing the main reason you want to sell – to help finance your retirement dreams (even if that dream is starting a new business).
So, how do you monetize your business so that it can provide you with a return on your years of effort without your having to own and run it for the rest of your life?
The first thing is to know the value of your business – but don’t try this at home. Hire an experienced business valuation specialist, whose expertise may supply you with ideas for boosting the value of your business before you offer it for sale.
There are a number of ways via which your business can be valued, based on:
The most common valuation methods are based on your business’ expectations as to income. Expected returns are either discounted or capitalized as appropriate to adjust for potential investor sensibilities and any risks inherent in your particular business.
Income-based valuations either highlight future expected cash flows or historical earnings. There are numerous methodologies available under this approach:
Market-based valuations compare your business with publicly-traded companies in your industry. These methods assume that the value of your business can be determined based on the price paid by investors for shares in similar companies on the market. Tracking stock price to the financial statements (earnings, cash flows, and other considerations) of these companies can assist in determining appropriate ratios to value your business.
However, there are so many company-specific factors (e.g., management, market share, etc.) involved in appropriate pricing for any individual concern that a market valuation is often used as a check on an valuation based on income or assets.
An asset-based approach to valuation can provide a bottom-line – no business, after all, can be worth less than the value of its assets minus its liabilities. Some asset-based approaches to valuation are:
Often a business valuation specialist will use two, and sometimes all three of the approaches above to determine the value of your business. The various methods can verify one another, providing confidence. Or they can show you opportunities to tweak your business into an even more attractive acquisition.
Again, this is something to discuss with experts – if you are even considering a potential sale of your business, please reach out to our Transaction Advisors for guidance – we can help you through every stage of the process.
Please click here to email us directly – we are here to help you.
Until next time –