Pappas Business Advisors

Since most business owners only sell a company once in their lifetime, it is quite understandable when an owner makes such an inquiry. While the thought of selling their company may seem overwhelming to many business owners, if thought in terms of small steps instead of giant leaps, it is really quite simple.

What is the initial question that comes to mind when you think about selling your business? One might guess that you wonder how much someone would pay for it.

Well, your first thought is the very first step you should take towards the ultimate goal of selling your business. Get a valuation to get an objective price range that you could expect to receive in the marketplace. It's that simple.

Typically, the documents needed to determine the preliminary most probable price range of a company are tax returns and financials for the most recent three to five years, current year-to-date financials, and an equipment list. Again, as you can readily see, the required items for a valuation is not complicated. Several years of financials helps paint a historical picture and current trend of the company. Upward trends are the desired scenario.

Since profits on financial statements and tax returns of privately-held businesses are usually minimized in order to reduce income taxes, the financial statements are restated in a valuation to demonstrate the actual income-generating ability and financial performance of the business.

As part of that process, a professional business broker / intermediary will ask easily-answered questions that will help determine which expenses are discretionary in nature or are not strictly necessary. There will be other expenses that may be non-business related benefits going to the owner and family members, or one-time, non-recurring or unusual expenses that would not be borne by a new owner of the business. These expenses will be part of the true discretionary cash flow that would be enjoyed by a new owner.

This valuation should clearly outline the details that buyer prospects and their advisors would need and can understand. It should be assessed on the same premises lending institutions use for the purpose of determining if the price makes sense.

The sooner you take the first step in determining the value of your business, the more informed and comfortable you will be in planning your next step.....whether it be deciding the time is right to sell now, or making improvements for a future sale.