Merger Industry News

What is My Business Worth?

  

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Here are common questions we get from our clients: 

"I would like to sell my business, but I’m not sure what it’s worth. How can I get an idea of the market value? Should I pay for an appraisal?"

Your business is worth what a buyer is willing to pay.  Most often it is not necessary to pay for an appraisal for your business.  Despite the fact that many industry professionals regularly sell appraisals for tens of thousands of dollars, appraised value does not determine the sales price of your company.  Rather, potential buyers will analyze your business and determine the company’s value to them.  They will most likely not even consider any paid appraisal you might have, because it does not consider all the factors that are pertinent to them.

Potential buyers will consider a variety of factors in their estimation of the value, including:

• What loan payments will they need to cover?

• What will they plan as a reasonable salary for themselves or a manager to run the business?

• Will they receive a respectable return on they cash down payment over a reasonable length of time? Will this be better than the return of the current mutual fund portfolio market?

If you’re not sure if there is enough value in the company for you to consider selling, you can estimate a potential value range of your company with the following:

1. What is the net profit from your company?

2. Add back personal expenses that are rolled into business expenses and unusual expenses that a buyer won't incur.  This is your true cash flow.

3. Honestly consider if your business type is declining, steady or part of a hot market. Do not base this on intangible “blue sky” ideas.

4. What is the loan market like: how available is purchase money?

5. Multiply the true cash flow by a factor of 2 to 8 depending on where your answers to 3 and 4.  

Merger Advisor Network advisors can help you get an estimate of a sales price for your company.  Our advisors will provide this and give you advice on how to best prepare your business for sale, and when to consider the best time to place your business on the market.

(photo by epSos.de)

Download our Guide to Selling a Business