Determining Business Valuation

What Would Your Business Sell For?

Determining Your Business Valuation

Going through a process of business valuation is a requirement for business brokers, sellers and buyers to determine the business worth. The key is to do things right from the very start and this means giving the idea of selling or buying a business a lot of thought and preparation with well-calculated assumptions designed to achieve positive results. Westwood-Benson, a Sacramento business broker, is known for its expertise in maximizing business valuation and shares the following guidance to business sellers.

Determining Business Valuation

Business Valuation

Every business is unique and there are no rules carved in stone to determine a business’ worth. Some business sellers may assume that their business value depends entirely on strong business connections established through dedicated service to the customers they serve. Other business owner’s may look back into their history and track record of high business income.

For business buyers, gauging a business worth is in part understanding the general economic trend and conditions that affects the competitive selling prices. How a business is being offered for sale also affects business valuation. A business buyer would think twice when presented with a fast sale in an auction situation verses a business offered for sale that is professionally presented with thorough and detailed offering memorandum designed to highlight the business strengths and the opportunities available to the would be buyer.

Simply put, the expected or assumed business selling price is what a business is worth. A well-thought of business selling plan by a professional Sacramento business broker includes at least one of three basic methods in determining a business worth.

First method is looking into an overview of the assets and liabilities of the business in question and comparing it to a scenario of starting the same business from scratch. How much will it cost to start a new business of the same nature that can yield the same benefits as that of an established business for sale.  The end result, which is the difference of this comparison, is the business intangible value.

The second method is reviewing the actual market place. Looking into the business comparable market value with businesses with the same products or services helps both business sellers and business buyers determine competitive selling prices and eventually satisfy their respective interests.

The third method is more popular with business buyers. It is looking into the history of the generated business income and applying the “what if” scenario. Here the practical reason for owning a profitable business is no doubt the end goal. Relative to this approach is taking risks as to what future benefits may be garnered. An experienced business broker uses two ways in using this method – capitalization and discounting.

The formula in capitalization is dividing the business’assumed earnings by capitalization rate. Assuming that the capitalization rate is twenty five percent, the business value is most likely four times the earnings per annum.

Discounting is done by projecting the generated income of the business over a defined time frame or holding period, and then determining the appropriate discount rate given the risks of getting the projected income over the specified period of time. The terminal value or final residual value (selling price) is then determined and the annual cash flows are discounted back to a final present value.

Both approaches serve their purpose for business valuation. The difference in what income input to use. Whereas, capitalization utilizes one income measure, likethe average earnings over a period of time, the discounting approach uses multiple income values over the years. Capitalization method is a good measure for businesses with a smooth sailing income yearly while discounting is best applied for businesses with variable income generation.

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Do the right things.

Measuring a business’ worth using the income valuation yields different end results and is highly recommended by expert Sacramento business broker, Westwood-Benson, as the best method in determining a business worth. No two businesses are the same and the valuation method utilized should be chosen based on the attributes of each individual business.

If you are considering selling your business, contact Westwood-Benson Sacramento Business Brokers for a free consultation.

9700 Village Center Dr, Suite 50-N
Granite Bay, CA 95746
Phone: (916) 788-1939

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How Long Does It Take to Sell A Business? Get Insights from Sacramento Business Brokers

 

 

 

 

 

 

 

 

Sacramento Business Brokers Provide The Right Solutions to A Fast Business Sale

Selling a business is just like selling any tangible product. You need to make your product attractive to get the attention of prospective buyers. In selling a business, you need to prepare the necessary documents to go with it. How well you prepare your business affects the type of deal you obtain and the length of time you are able to sell.

Pricing and terms in correlation with the conditions set for the buyer to enter an easy deal are also part of the whole process. If you would consider eliminating the impediments to make your business more appealing to the right buyers and ease out the path, you could sell and close the deal fast.

The Process of Selling a Business

The initial meeting between you and your Sacramento business brokers would be a “get-to -know -each -other” kind of stuff. You exchange pleasantries, discuss your current business and your business plans, and then start laying out the selling strategy.

The second stage involves more plans, research, and valuation. This step alone may take up much of your time. It could be for a minimum of a few weeks to several years. It is the stage where your Sacramento business brokers will do some research, study the market analyze your business, and will advise you on what you can do to put additional value in to your business.After your business broker presents everything to you, you are now ready to decide when you want to sell.

The third stage is marketing your business in a structured package. This is to diminish the time and enhance the outcome. Your Sacramento business brokers would be preparing the promotional ads, create a prospective buyer’s list, aggressively offer your business to the prospective buyers in the prepared list, meet up with prospective buyers, conduct an auction to whet buyers’ to pit against each other.

The fourth stage is due diligence. This is the crucial phrase where time seems to stand still. Buyers get to scrutinize the businesses and this is where most deals disintegrate.

The fifth stage is the final negotiation along with the final documentation and deal structuring.
The sales process is a well-structured and clear-cut progression but like all else it is far from perfect as it has inconsistencies and complexities. The duration of the whole sales process lasts for a minimum of six months to as long as 8 to 10 years.

The following factors may affect the duration of the whole process:

  • The amount of time you spend in the second stage, building up value to your business and deciding when you are ready to sell
  • The level from which to create your business transparency
  • The level from which the buyer and your business are respectable to fit for each other.

It is advisable to consult your Sacramento business brokers for the best solution to your specific needs.

 

Types of Services That Sacramento Business Brokers Can Provide

Sacramento Business Brokers

 

 

 

 

 

 

 

 

Sacramento Business Brokers Excellent Business Service Providers

Sacramento business brokers’ services may vary depending on the skill set and practice of the business broker. The general services that Sacramento business brokers may provide to a client are:

  • Aid the client in the establishment of a “Most Probable Selling Price Valuation” or MPSP Value
  • Formulate an all-inclusive Information Memorandum outlining the business for potential buyers
  • Search for Buyers
  • Market the business to potential buyers
  • Screen prospective buyers for capability to conclude a purchase
  • Provide deal constituting advice and direct negotiations
  • Provide general deal management as guide through the whole process
  • Help preserve confidentiality of the transactions
  • Hourly Consultations for a fee, depending on the needs of the client

One of the major services provided by a Sacramento business brokers is allowing owners to concentrate on running their respective business while the sale process is in progress. The sale process may take 6 to 12 months to consummate. Employing Sacramento business brokers is not a requisite for the conveyance or sale of a business or for acquiring a SBA loan or Small business Loan from a lender. However, in sale transactions where a broker is employed, a special escrow attorney called party handling closing or a settlement attorney is drawn to  warrant that all parties, including brokers, agents and sellers involved be paid accordingly. Lenders have their own special requirements for SBA loan.

Sacramento business brokers service the market involving the sale of businesses with less than $10 M transaction values. Larger companies are categorized in Middle Market that employs mergers and acquisitions firms that handles special sales. Business brokers also participate in the middle market activities when the transactions involve two or more small companies. Merger & Acquisition firms and Business Brokers sometimes overlap transactions in the boundaries of their respective markets. These boundaries are called the TransMarket or Transitional Market.

You gain more knowledge on how a business sale is done when you use a business broker to handle the job for you. Business brokers are often tapped to help in maintaining confidentiality. Normally, the identities of buyer and seller are withheld up to when a particular buyer has been favored by the seller. In some areas, particularly in small communities, all details are known especially if the business in question is popularly known.

In the business world, buyers are always up on guard for good investment buys. Once a listing is posted, these potential buyers come up front, and ready to negotiate at the first smell of a good deal. If you are interested in purchasing a business, consult one of the Sacramento business brokers as more likely, he can bring you a complete listing of all the good businesses available for sale in your area. The key here is saving time and unlocking the door may bring you quick results.

Sacramento Business Brokers Know Why Do Business Deals Fall Apart?

Sacramento Business Brokers

Sacramento Business Brokers Shaking Hands


Sacramento Business Brokers Discuss Deals eBook

There are tons of reasons why a business deal falls apart and Sacramento business brokers know why. It could be that you have changed your mind about selling, or you may have had experienced employee conflicts. It could be that an unfortunate circumstance prevented the buyer from pursuing the deal. It can be attributed to business cycles, the economic crunch, and several other factors that are beyond anyone’s control.

Sacramento business brokers agree that selling a business is a taxing and frenzied transaction, but can be alleviated by acknowledging the fact that a deal is not done until you see the money in the bank. Many serial entrepreneurs and business brokers know that a lot of business deals fall apart because owners fail to prepare the businesses well enough to attract buyers. If you are selling your business for the first time, learn about the common reasons why a business sale fails, so that you can prepare to fix issues before you put your business up for sale.

If you are selling your business, you will receive condition offers to buy or letters of intent from prospective buyers. As price and terms are discussed, a degree of exhilaration builds up going through a negotiated deal. It is at this time that the provisional period starts. The buyer then starts his due diligence and prepares to fortify his purchase financing. The deal may start to weaken at this point when the buyer realizes that he is unable to fortify bank financing for purchasing and subsequently pulls out out.

Sacramento business brokers have always known that financing for a small business deal is difficult to secure. Banks do not accept business goodwill as collateral and the poor buyer is left to scrounge and find credit and money somewhere else. If the vendor is not willing to partake in deal financing or the purchaser has no substantial private financial resources, the deal can swiftly come to an end. Most buyers think that a 10% equity as a down payment can buy a business. The inhospitable reality is that they are not qualified to buy the business unless they have an equity posted in the 50% range.

The seller may not have been totally truthful from the very beginning. Any major business issue must be declared and revealed to the buyer. Nothing is perfect. Any business up for sale will always have its flaws. It is the sensible obligation of the buyer to be transparent as far as these issues are concerned. Savvy and intelligent buyers are very much aware that no business is absolutely perfect. Therefore, the problem begins when issues are kept hidden only to be uncovered at the time of due diligence. Good faith and trust comes crumbling down. This is where the help from Sacramento business brokers comes in most handy.

Some deals fall apart because vital information, particularly financial information, is withheld by contracting parties. Due diligence is a process undertaken for the purpose of verifying information that has been declared already and must not to explain away issues or not to back-peddle on half-truths that could have been revealed earlier. It is advisable to consult an experienced Sacramento business brokers or chartered accountant to help you through the process of selling a business sale.

Business Buyer’s Myth

Sacramento business brokers discuss the buyer’s myth

 

What have motivated you to buy a business? A simple “…because it has always been my dream to own one…” may not suffice. When owning a business, you need to contemplate on the real purpose of why you want to buy a business. Spend some time and think of other reasons for coming to a very important decision. If the prospective business looked interesting, then it must have brought you a sense of excitement. Do not stop at this point. Do you love the type of work you will be doing if you buy this business? Do not be one of those buyers who are just drawn into buying a business because it seems fun and exciting. You may not realize it but you may be driven by your emotions. Generally, business and emotions do not make a good combination.

In any business endeavor, planning is key. Sit down, relax, have a cup of coffee if it makes you feel good. Take a piece of paper and a pen and start putting your thoughts into writing. It does not have to be a formal list. Just scribble your thoughts randomly. Start by answering the two questions above. The point here is from the start, you need to formulate a good plan for your business buying venture. State your primary purpose followed by some other lines, and yes, no matter how silly it may sound. Mark your priorities.

If you have purchased a business altogether, then skip the questions above and just jot down your business plan. Start with your financials. If the money you used to purchase your business came from a bank loan, then you really need to finish that business plan. It is a different story now if you do not really know how to compose a business plan. Browse the web to find programs that will show you how or consult a business broker who can guide you throughout the business planning stage. Then the next best thing to do is to consult Sacramento business brokers and discuss your plans. You must have bought a business that sells services and products. Now that you have full control of the inventory, you need to make a database of sorts. Keep a business log and faithfully update this log.

All products and industries have an expiry date. Even people expire. Your products get old each day. Should you wait for it to expire? Begin processing and replace the old with the new. This is just a mental process that correlates to your business’ life cycle. You need to upgrade every aspect of your business, your products, your people, your records, and most of all yourself. And one day, when you decide to retire or maybe get tired of doing business, you may think about reselling the business. By then you will be prepared because you have started to organize today what could be messy in the future had you not. Purchasing a business is like having a child. It may be the most significant deed you have ever done. Go nurture it for the right purpose, be patient, slowly but surely, do appropriate due diligence, and bargain for the superb deal, and make your business prosper. Consulting sacramento-business-brokers-buyers-myth will help you make the right decision.