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.
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 business
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.
Fair Asking Price
Then comes the hard part… Typically, businesses sell for a ‘multiple’ of the profits or what is called the ‘owner benefit’ (reflecting all the ‘hidden profits’) plus some value allocated for the physical assets. Many other factors are examined to determine this ‘multiple.’ These other factors include the length of time you have been in business, the trajectory of sales and profits over the last several years, the net margins of the business, the location of the business (for retail), and how involved the owner is in the business (the less involved, the higher the multiple). All of these factors are carefully analyzed so your business evaluated fairly and accurately. Of course, industry standards and similarly sold comparable businesses are also closely examined.
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.