Many times, the seller of a business gets a rude awakening when they finally decide to sell. This occurs when they assume they know what the market value of the business is, without consulting an active business broker/intermediary to determine what is reality. This rude awaking can cause havoc to one’s plans.
The most-common concept is that price is based on a multiple of sales. While sales and the trend of sales is important, this are not the main driver for an asking price. One of the main drivers for the price of a business is what is called owner benefit, or seller discrepancy cash-flow (SDCF), which is net operating profit, plus what are commonly called add-backs. Add-backs simply stated, are expenses which a buyer would not incur. The sum of these numbers is the owner benefit or SDCF.
That rude awakening about market value occurs because value is based on the owner benefit as calculated from the prior year or few years of corporate tax returns and the trend of business. If an evaluation had been done a few years before the seller is ready to sell, there often are steps that can be taken to increase the value.
This broker would be happy to give a confidential review of what a reasonable price for your business would be now, and what you can do to maximize the value when the time comes to sell.
Whether you’re a seller or a buyer, if you would like a confidential conversation about how to prepare, contact me on my cell, 954-579-4687, or by e-mail at bobd@dolansales.com or Google me and Dolan Sales, Inc. My LinkedIn profile is at http://www.linkedin.com/in/dolansales.
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