01 Sep Around the Web: A Week in Summary
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A recent article from Smart Business Dealmakers entitled “Self-Awareness Is Key When Preparing To Sell” offers insights for business owners who are getting ready to exit. These insights are intended to help prepare the owner so that they are happy with the outcome of the sale.
Self-awareness is very important when preparing to sell your business. Consider the following:
- What are your values?
- What are your goals?
- How much risk do you wish to take?
- Are you ready to give up control?
- Are you diversified enough?
A recent article from Forbes entitled “What Should You Sell Your Business For? The Answer Is In The Gaps” explores the topic of pricing a business for sale. While many immediately focus on the selling price, it is important to look beyond the sale price to the net proceeds to truly realize how much you will be walking away with at the end of the deal.
Net proceeds are after all deal expenses such as broker fees, attorney fees, accountant fees, business debt, holdbacks, earnouts, seller financing and taxes.
It’s also important to consider these three financial gaps:
- Wealth Gap – Difference between your current wealth and how much you need to live your desired life
- Profit Gap – Difference between the best-in-class industry EBITDA and your company’s EBITDA
- Value Gap – Difference between percent of EBITDA to revenue of best-in-class companies and percent of EBITDA to revenue of your company
A recent article from Exit Oasis entitled “Julie’s Big Eyes Will Keep Her from Selling Her Small Business” analyzes the decisions of a business owner eager to grow their business and how these decisions ultimately affected the value of the business.
In this scenario, the business owner was often reinvesting profits to spur growth. While on the surface this may seem like a sure way to make the business more valuable long-term, in the short-term it may actually make it less valuable.
When profits are reinvested in things like new hires, more space, and advanced software this lowers the Seller’s Discretionary Earnings (SDE). SDE is a central figure when it comes to valuation as a multiple is applied to SDE to determine the value of the business. The lower the SDE, the lower the value of the business.
So by constantly investing in growth strategies, the owner effectively reduced SDE which in turn reduced the value of the business.