22 Jan Around the Web: A Week in Summary
A recent article from Forbes entitled “Five Things You Can Do This Year To Increase The Value Of Your Business.” provides tips and tricks to help business owners increase the value of their business and also ensure they’re ready when it’s time to find a buyer.
Some of these tips to increase the value of a business include:
- Clean up your financials – Stop running personal expenses through the business.
- Diversify your revenue – Make sure you have multiple revenue streams to minimize risk of business failure.
- Know your numbers – Have clear figures for past performance and realistic growth projections.
- Get control of your accounts receivable – Keep payment terms short so that the buyer doesn’t need as much initial working capital to keep the business running.
- Establish some form of recurring revenue – Any type of recurring revenue is better than one-time revenue.
A recent article from INSCMagazine entitled “Why Do You Need a Business Broker?” provides insight as to why working with a business broker can be the best option when it comes time to sell your business.
Business brokers can help you complete and present a financial analysis of your business to paint a clear picture for potential buyers. The business broker will also use this analysis along with industry and economic indicators to determine an appropriate selling price. Your business broker will work in way that maintains confidentiality so the sale doesn’t affect operations. They will take steps to ensure a potential buyer is a genuine and serious candidate for acquiring your business. Your business broker will also bring experience in negotiations and closing deals to your transaction. Having one of these professionals on your side gives you a major advantage.
A recent article from The Business Journal entitled “Valuation Helps Set Plan for Succession Transitions” discusses how important a business valuation can be when it is decided to either pass on the business to the next generation or sell it.
There are many stones to turn over when determining the value of a business, and knowing when to start this process is critical. It is recommended to start the process between three to five years before the current owner plans to leave the business. This ensures you have time to thoroughly analyze all of your financials and address any factors that may affect your valuation.
Three main approaches in valuing a business include asset, income, and market. Asset goes over assets and liabilities to create a floor value. Income looks at the business’s cash flow and how that is estimated to continue. Market looks at transactions for similar companies.
Once the value is established, it can help determine when might be a good time to sell, who it might be sold to, and if it’s likely to be a strategic buyer or financial buyer. These are all important in understanding the next step for succession planning.