Most owners want to grow their business, but few really understand their accounts and balances. These documents contain many hidden guidelines which may direct the owner to appropriate management. Sit down with your accountant, read some books covering this su
bject and you will be one step ahead.
If you buy a small, growing company with success, do not worry about being "original." Do exactly what the seller has done, although it does not make sense to you.
There is an obvious mistake many small business owners make. It is not declaring cash sales. Sure, some tax-free money, but it comes back to bite where it hurts. It devalues the business because a selling price based on profits and cash flow. Trying to prove that a potential new owner how much money you steal from Uncle Sam is dangerous and can result in an unwanted holiday behind bars. Buyers will not believe that money into evaluating your business. Consider it money you already paid for your business.
When you buy a company (or sell), you need a competent broker. Not one who is an expert on "the list" companies. A broker who has 20 to 25 good lists are better than one with a couple hundred. Typically, brokers with hundreds of dealers advertise only what their salespeople tell them-complete with disclaimer. They do not take the time to analyzing the company itself. Effective mediators will develop "adjusted" or "reconstructed" income statements that, after checking, put their client's business at the same level as others, regardless of how the owner out profits. It adds liquidity to the bottom line of such products as non-recurring, extraordinary expenses, interest, owner's compensation and all expenses that are not actually necessary to do business. Make sense?
You'll find most of the multi-listing business brokers advertising the actual name of the company for sale. Not a good practice. How would you feel, or what would you do if you saw the firm you worked for was on the sales block?
There are three ways to price a business.
1) Price is FOR SALE.
2) Price it to sell quickly or
3) The price is right.
Remember that the selling price of a company is based on discretionary cash flow sufficient to service the purchase price note you wear plus interest, and to provide the buyer with a salary.
1 comment:
Useful advice! When I hired a Certified Valuation Expert (CVE) to find out what my company was worth, in addition to providing a value du jour the CVE gave me 17 factors that determine value in the buyer’s eyes. We designed an algorithm using those factors to measure whether the value of our company increased or decreased each month. The algorithm could not predict exactly what the company was worth of course since that depended on the buyer, but it did tell me if I was doing things that increased its value. The 17 factors are contained in “Expensive Mistakes When Selling a Company” and can be downloaded at www.57mistakes.com
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