09 Dec Around the Web: A Week in Summary
A recent article from Axial entitled “Business Valuation Misconceptions” reveals one of the top reasons deals fail: misaligned valuation expectations between the seller and the buyer. To improve your chances of success, it is prudent to be knowledgeable regarding valuation.
Common valuation misconceptions include:
- Businesses are valued on multiples of EBIDTA
- I will get credit for potential future growth in the valuation
- I should expect to receive the industry average valuation
- I’ll sell the stock, not have to pay off loans and taxes will be capital gains at a lower rate
- I’ve been running a large amount of expenses through the company to reduce my taxable income, but I can just add them back to my “adjusted” cash flow and get credit in my valuation
- There is only one acceptable method to value a business
- Valuations won’t change much over a short time period
- The value of my business is equal to my land and building plus my business
- The more assets I have in my business the more valuable it is
- Companies with similar sales and revenue averages within an industry will have the same valuation
- I know the standard valuation multiple in my industry, so I can just apply that to the Cash Flow to get a ballpark valuation
A recent blog post from Sunbelt Network entitled “Weighing Your Options: Start a New Business or Buy an Existing One” discusses the pros and cons of starting a new business vs. buying an existing business.
Starting a new business gives you the opportunity to build something from scratch and can keep initial costs down. However, you won’t have an established customer base or brand, and it can be challenging to obtain financing.
Buying an existing business can speed up the process and give you an established customer base and brand. However, it can be more costly upfront and may involve some transition hiccups.
A recent blog post from Viking Mergers & Acquisitions entitled “Family Business Succession Planning: Are You Ready?” discusses the importance of succession planning for family businesses so that the current generation is content with the transition and the next generation is set up to succeed.
According to a recent survey, almost 70% of family business owners expected ownership to continue to the next generation yet only 23% had a robust, documented business succession plan. The lack of a succession plan can result in the next generation not being ready to lead, family members and stakeholders not agreeing on the transition, and the business not having enough liquidity to support the transition.
These issues can be minimized with thorough planning. To aide in this process, consider utilizing the services of a professional advisor.