EVALUATING YOUR BUSINESS

The first step before you sell your business is to obtain a proper business evaluation. At Five Star Business Brokers, we offer all future clients a FREE business evaluation.

Financial Analysis

A careful and thorough analysis of your financials is the first crucial step. The most important aspect of the business evaluation process is looking at your financials. This usually involves tax returns or profit and loss reports (typically going back three years if possible). Many sellers do not realize that there are ‘hidden’ profits contained in their financials. These ‘hidden’ profits can be in the form of non-cash expenses, owner salaries, one-time non-recurring costs, and any personal expenses that run through the financials. The goal of the financial is maximizing your adjusted owner benefit which serves as the starting point for the valuation.

Physical Business Assets

Next, we will discuss and evaluate the physical assets of your business. This includes leasehold improvements, equipment, and inventory (defined as items saleable to the public). The age and condition of the physical assets need to be examined to represent the current depreciated value of the physical assets accurately. It is always best for business owners to update and modernize their physical assets prior to selling to help showcase their business to prospective buyers.

Apply Valuation Multiple

Then comes the hard part… Valuing the business based on a wide range of factors that must be carefully weighed in relation to the valuation multiple afforded to comparable local businesses sold within similar industries. Typically, businesses sell for a ‘multiple’ of the profits or what is called the ‘owner benefit’ (reflecting all the ‘hidden profits’) with the physical assets serving as a valuation floor. Key valuation factors for a business include longevity and stability; trajectory or growth rate of sales and profits over the last several years; margins and operational structure; location and lease; level of owner-dependency (the less involved, the higher the multiple); and any competitive advantages that gives the business an edge in price or service over the competition.  All of these factors are carefully analyzed so your business is evaluated fairly and accurately. The valuation multiple is always applied within the context of industry standards and similarly sold businesses.

In short, evaluating your business is the first and most important step in selling your business. Setting the price too low or too high is a dangerous mistake many other brokers make for their clients. At Five Star Business Brokers, our business is selling businesses, and we do the job right the first time!

Please contact us today for a FREE business evaluation.