28 Feb Some thoughts on valuing and pricing a business
- A professional valuation of your business is important, but the resulting value is usually not the purchase price. The business will be bought for whatever the seller will take for it.
- Lenders tend to look at fixed assets; buyers tend to concentrate on cash flow.
- Buying businesses goes beyond the numbers – and the price. Many buyers drop the ball by failing to romance the seller. A buyer’s insensitivity to the owner can destroy a deal and possibly create a stubborn seller when it comes down to a selling price. On the flip side, sellers need to be aware of having a “nobody is good enough for my baby” mentality when meeting potential buyers for their business.
- Sellers are often selling their legacy, so the dynamics of the deal are often more important than the price.
- For businesses without audited statements, sellers (and buyers) will want to make sure that the financials agree with the tax returns.
- Price doesn’t kill deals, terms do.
- Sellers should show “real” earnings without a lot of adjustments and add backs.
- The decision makers should be consulted at every step of the way. That is a big reason to involve business intermediaries in the deal from the beginning.
- Sellers should be prepared to accept a lower selling price for dependence on the owner, lack of management depth, reliance on just a few customers, and regional versus national distribution.