Preparing your business for a sale creates a stable cash flow for the buyer and insures getting the best price for the seller.
Every successful business transaction should be a Win – Win – Win. A win for the buyers, a win for customers and a win for the sellers.
In the third quarter of 2019, more than 2,400 small businesses were sold. The median sale price was roughly $278,000, up 3.3% from 2018.1
As a business owner, ascertaining the value of your business is important for a variety of reasons, including business succession, estate tax estimates, or qualifying for a loan.
There are a number of valuation techniques, ranging from the simple to the very complex. Outlined below are three different approaches to valuing a business.
- Asset Based: Calculates the value of all tangible and intangible assets held by the business. This approach ignores the future earning potential of the company. Thus, a pure asset-based valuation model is often used for companies that are bankrupt or looking to liquidate.
- Earnings Based: Seeks to arrive at a business’ value by applying a multiple to normalized earnings, i.e., earnings adjusted to subtract owner’s compensation and related expenses. The multiplier can vary substantially, depending upon the industry and the outlook for the business.
- Market Based: Compares the business to recent sales of similar companies.