13 Mar Around the Web: A Week in Summary
A recent article from Inc.com entitled “How to Find the Right Buyer for Your Business and Avoid Negative Consequences” explains the importance of finding the right buyer when selling your business and steps you can take to help find this right buyer.
Choosing the wrong buyer for your business could poorly impact your outcome, but it can also poorly affect your employees, the community and your customers. Avoid detrimental outcomes of a sale by using these tips to evaluate and choose the right buyer for your business:
- Determine the requirements you have from an ideal buyer and set hard limits around financing terms.
- Create a listing that stands out from the crowd and weeds out false interest.
- Pre-screen each potential buyer to ensure that they are genuinely interested in purchasing the business and hire a trusted professional to request further information from each prospect.
- Once you’ve received detailed information on a potential buyer, go through it thoroughly to make sure they meet your pre-determined requirements and are capable of running the business well.
- Understand the difference between a strategic buyer and a financial buyer and how each will affect the future of the business.
- Know the market. Currently, it’s a very strong market for sellers and an excellent time to sell your business for a premium. Conditions may change soon, however, and could change your experience selling.
A recent article from Divestopedia entitled “When an EBITDA Multiple Doesn’t Work for a Valuation” describes business circumstances that justify selling your business for a higher price than the current market standard for other businesses in your industry.
It is common for a business owner to believe that their business is worth more than the industry standard. In some situations, they’re right and a different indicator for value should be used. These situations include:
- During aggressive growth: When a company is investing the income from sales back into the business and rapidly growing their sales, the EBITDA is not going to reflect the value that is being built into the business.
- When you’re investing in your business: It is not a good idea to invest money into your company that will not show an immediate return within one year of your anticipated sale. However, if you are in the middle of revamping things and someone approaches you with an offer unexpectedly, you should make adjustments to the current EBITDA based on these changes and their potential payoff so that you don’t lose out on your multiple.
- If you have stored value: Companies that don’t show a lot of revenue during a product development period don’t receive an appropriate valuation relying on the typical EBITDA multiple.
In the instances in which an EBITDA multiple is not the best way to show the appropriate value of a company for sale, the P/E or Price to Earnings multiple is a reliable alternative.
A recent blog post from The Capitalist Alliance entitled “Why You Should Stage Your Business. Today.” explains the three reasons why a business owner needs to stage their business when preparing to sell.
Selling a business is not like selling a house in the sense that an investor can walk away at any moment since your business is not a need for them. Taking the time to carefully stage your business is important for three reasons:
- It will increase your likelihood of actually selling your business. Less than twenty percent of businesses that go to market actually sell.
- It will make you more money by cleaning up problem areas of the business that may not have seemed pressing to repair but were costing you money long term.
- It will make the business more enjoyable to run.
Staging your business before you’re planning to sell takes the pressure off. Getting problem areas taken care of, upgrading equipment, and ‘cleaning house’ can certainly make your business more salable but it can also improve its performance.