Selling Your Business How Much Is It Worth – Over the past year, I’ve met with many small business owners who have just received an appraisal, and often the number in their head was higher than a professional appraisal or opinion of value. This makes the process of selling your business even more difficult. You want to make sure that you’re not only parting with a company you spent your life on, but that you’re getting the best possible deal and fair value for the company. In addition, this may be the first time you are selling your business. This problem inspired us to launch Baton, a marketplace for buying small businesses and much more.
If you are considering selling your business you probably have many questions and concerns. Many of the business owners we work with have spent hours wondering, “Okay, I’m selling my business…how much is it really worth?” Or maybe your questions are centered around the logistics of closing the deal. Or maybe you’re not sure what your next steps are once you’ve decided to move forward with the sale.
Selling Your Business How Much Is It Worth
We started at Baton to help you no matter what stage you are in when selling your business. You shouldn’t have to navigate this daunting process of selling your business alone.
Sell Your Business Today
There are many resources available to help you sell your business to the point where it becomes overwhelming. That’s why we’re breaking down the process of selling your business by highlighting common questions and considerations.
You have invested years of your life in growing this company; It’s understandable that you want to get the most bang for your buck and make sure you get a good deal. We will answer the questions: “Is my business worth selling?” “How do I prepare the finances” to “How do I close a deal?”
Let’s dive into answering your first question: How do you evaluate whether your business is worth selling?
There are many reasons for small business owners to consider selling their business. Some small business owners want to try something new and will reinvest the profits from their first company into a new venture they are excited about. In other cases, the small business has cash flow problems or there are financial risks that the owner does not want to take.
Selling My Business How Much Is It Worth?
Alternatively, some decide it’s time to say goodbye to their company if they prefer a guaranteed payout rather than rolling the dice to see what happens in the future. In other cases, the owner is retiring, and selling the business marks the end of his career.
Sometimes there may be a case for keeping your operation alive. For example, if sales have declined in recent years and you believe you can improve the cash flow of the business over a reasonable period of time, it may be beneficial to make some changes before selling.
Other times, you have to let the industry or even global trends play their part. Take the COVID-19 pandemic, for example. Small businesses were disproportionately affected, which negatively impacted cash flows, buyer demand, and business sales prices.
We encourage you to first evaluate why you are selling your business. Try to consider what you are gaining or losing by leaving your business. Once you’ve decided you want to continue looking into the sale, your next steps await.
What`s Your Business Worth?
We’ve outlined the steps you’ll take when you decide to sell your business. The first step is to make sure you know how much your business is really worth, so you can be sure you’re getting the most out of it.
The first step should be to get a business valuation, which is to determine how much your business is worth. This is a critical step in the process for several reasons.
First, it will give you more insight into how much you can earn from the sale of the business. Second, it will give you leverage when you consider offers. A business with a proven track record of strong profits will likely be easier to sell than one without such a track record.
It’s one thing to say you’re going to determine how much your business is worth, but quite another to know how to do it. It all comes down to different valuation methods. Some of the more popular methods are:
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When deciding which valuation method to use, it’s important to consider things like net income, company assets, and the current market. If you’re not sure which valuation method is right for your business, a partner like Baton can help.
You have a clear idea of how much your business is worth, thanks to the research you’ve done and the time you’ve spent putting it all together. Now, what is your next step in selling your small business? It’s officially time to start preparing your finances.
If you don’t have an accountant or bookkeeper, working with a financial professional can help you make sure your books are clean. While most small business owners incur personal expenses through their business, be sure to normalize your profit and loss account. This will show what the business creates.
When you’re rounding up your financials, you should have all of your sales and profit history. The more financial records you can provide, the better. Buyers can also expect profit and loss accounts, bank statements, balance sheets and tax returns.
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If your business isn’t in the best financial shape, you might want to consider pricing it accordingly – to demonstrate to potential buyers that you’re aware of the risk they’re taking on if they buy the company.
If you’ve had your business for several years, you can give them a net profit over a certain period to understand how much revenue the company has generated.
This brings us to our next point: cash flow. Cash flow refers to the movement of money into and out of a business. This is often talked about in terms of liquidity. With the help of cash flow statements, your potential buyers will be able to know whether your business generates enough income to cover expenses. Provide an overview of the business’ annual cash flow and provide a free cash flow overview.
Seller’s Discretionary Earnings (or SDE) is an estimate of the total financial benefit a full-time owner would receive from a business each year. This is sometimes called adjusted cash flow. Keep this in mind later when we look at how to price your business.
Sell A Business
Hold on to this information; We will mention it later! When you calculate the SDE, you will need to determine a reasonable multiple that you can apply to the earnings stream. Multiples are usually 2-3x, however this varies. If your business is doing really well, you can even see it reach 4x.
You’ve completed the business valuation process, prepared your financial statements and due diligence documents, and now you’re ready to begin the next step in selling your small business.
A good broker will be able to handle many of the issues involved in selling your business, allowing you to keep your focus on maintaining the business. Trying to sell a business can be a full-time job, and when you’re in the process of keeping your business running, it can be quite demanding. A great broker should be able to effectively market your business and generate new demand for your network of buyers.
There are also downsides to working with brokers: brokers are not cheap and may charge a retainer fee and usually take a percentage of the deal, 10%-20% is normal. Also, if you don’t know your valuation well, a broker can command a higher price to lock in an exclusive deal to lower the price.
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Here at Baton, we’re always proud to be on the small business owner team; that’s why we start with unbiased and complimentary business valuations, support you wherever you are on your journey, and never charge the owner. If you decide to work with a broker, Baton can connect you to its network of verified brokers.
Now it’s time to officially list your business. We encourage you to use an online marketplace where potential buyers can browse listings. When you list your small business on Baton, your business will be seen by qualified potential buyers. Through Baton, the buyer also has access to financing and purchase protection, which makes our marketplace the perfect place to sell.
You’ve decided to list your website on Baton’s digital marketplace. now what It’s time to figure out your exit strategy and when to sell. Determining when is the right time to sell your business is not easy.
There are many other indicators that can tell you that your business is in the right place to sell: your finances are trending upwards, your team is stable, there is a high demand for your products,
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