30 Jun Around the Web: A Week in Summary
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A recent article from Forbes entitled “Thinking About Selling Your Business? Ask Yourself These Six Questions First” offers advice for business owners who are contemplating exiting their business. This is a big decision filled with emotions. It’s important to make sure you are prepared and that the timing is right.
Consider the following questions:
- What are you going to do next?
- What have you done to replace yourself in the business?
- Who do I need to hire to help me accomplish my goals?
- Do you know what your business is worth, and will this price be something you can retire on?
- Are you willing to stay on for a period of time post-transaction?
- Are you willing to carry a portion of the transaction on seller financing terms?
A recent article from St. Louis Business Journal entitled “Keys to maximizing shareholder value when selling your business” discusses the important subject of business valuation. When selling a business, the valuation is central to determining a proper selling price. This business valuation will generally derive from EBITDA and a multiple.
EBITDA is earnings before interest, taxes, depreciation and amortization. It’s a good measure of cash flow, making it a key to the valuation. Add-backs of discretionary expenses that would not exist after the sale should also be taken into consideration.
The multiple is a multiple of EDITDA. For example, a multiple of 3 would mean 3 x EDITDA = business value. The multiple is determined in large part by risk, so the higher the risk the lower the multiple.
Putting a management team in place and planning your exit ahead of time can help drive value and set yourself up for a successful sale and transition.
A recent article from Forbes entitled “How To Sell Your Business During A Recession” explores the feasibility of selling a business amidst a recession. Depending on the industry, the business itself, and the expectations of the seller, it is possible to do. While we’re not currently in a recession, the COVID-19 pandemic has had an impact on many businesses similar to what a recession would.
If your industry hasn’t been hit too hard and if your business remains profitable, so far so good. Next is evaluating how the business is performing in relation to the 6 P’s – People, Product, Processes, Proprietary, Patrons, and Profits. If the business excels in all of these areas, your chances are looking even better.