Business Valuations Not Static Business values are not static and change over time based on financial performance, risk, and market conditions. The value of privately owned businesses are generally illiquid, or not easily converted into cash. This contrasts with the value of other asset classes such as publicly traded stocks or bonds which are liquid … Read more
What Is Recurring Revenue? Recurring revenue consists of stable, predictable, and reliable revenue that is expected to continue with a high degree of certainty for the foreseeable future. This contrasts with ‘one-off sales’ which is a revenue stream from unpredictable one-time events with less degree of reliability to recur in the future. There are degrees … Read more
Business Valuations Enhanced in Florida The main driver of business valuations is the future cash flow the buyer may reasonably expect to derive from the business after the sale. If the future cash flow from the business is heavily taxed, threatened by regulation, or resides in an unfavorable demographic environment then business valuations ultimately suffer. … Read more
What is Formal Due Diligence? Formal due diligence is a contingency of a business deal which allows the buyer to thoroughly investigate a business to its satisfaction prior to closing. The formal due diligence process should only occur after a deal is ‘under contract’ whereby there is a written agreement in place (either a Letter … Read more
What is ‘Work in Progress’? The term ‘Work in Progress’ (WIP) in the context of business sales generally refers to ongoing jobs or projects that have been started by a business but have yet to be completed. In manufacturing industries, ‘Work in Progress’ refers to partially finished goods awaiting completion. ‘Work in Progress’ is considered … Read more
Keep Business Sales Confidential from Employees When selling their business, many business owners wish to maintain the confidentiality of the sale from their employees. Business owners are justifiably fearful that their employees may panic or even quit if they find out that the business is for sale due to premature leaks. Implementing a ‘need to … Read more
SBA-Financed Business Deals Many buyers of businesses use loans backed by the Small Business Administration (SBA) in order to purchase businesses. SBA-backed loans absorb lending risk for banks by guaranteeing the loan used to buy a business. Both the buyer of the business and the underlying business itself must properly ‘qualify’ under SBA guidelines for … Read more
What is A Cap Rate? A capitalization rate (or cap rate) determines the valuation of income producing business properties by measuring the ratio of Net Operating Income (NOI) to the sales price. A low cap rate signifies more safer and stable investment opportunities. Higher cap rates indicate more risk for the buyer and hence discounted … Read more
Revenue-Based Valuation of Businesses Some business owners believe that their business valuation should be based on a multiple of their gross sales, or total sales unadjusted for the costs related to generating those sales. Although this valuation approach may work with some businesses in selected industries, it is not generally an appropriate valuation metric. The … Read more
Buyers of Businesses Should Pay Fair Price Prior to making an offer for a business, a buyer should carefully determine whether the proposed purchase price reflects a fair valuation of the business. For some buyers experienced in purchasing and operating businesses, this will come fairly easily. Buyers such as experienced competitors in the industry often … Read more