08 Sep Around the Web: A Week in Summary
The following information has been sourced by Business Brokerage Press for the benefit of the business brokerage community. The views of these articles do not necessarily represent the views of Business Brokerage Press. We hope you find this information helpful.
A recent article from Mercer Capital entitled “How Long Will It Take to Sell My Family Business?” examines timelines for business transactions. These timelines will vary, especially based on the type of transaction. In each scenario, the more prepared the seller and the business are for the sale, the better positioned they will be for a timely conclusion.
Internal transitions will be influenced by the existence of a buy-sell agreement or employee stock ownership plan. If there is an existing buy-sell agreement, the transaction could take 1-2 months on the low end to several months on the high end. An employee stock ownership plan transaction may take 4-6 months.
External transactions may take 5-7 months and involve three key phases: preparation, going to market, and closing.
A recent article from Entrepreneur entitled “Trying to Sell Your Business? Skipping This One Step Will Leave a Fortune on the Table” discusses a key step in the business valuation process: add-backs. It is important to understand what add-backs are and how they impact the value of a business.
When determining business value, an important figure to determine is Seller’s Discretionary Earnings (SDE). SDE is the sum of net income plus add-backs. Add-backs are owner expenses (i.e. large salary, health insurance, retirement contributions) and non-recurring expenses (i.e. legal fees, equipment purchases) that the new owner won’t have to incur.
These expenses are added back in to the net income of the business to determine the SDE. Then a multiple is applied to SDE to establish the value of the business.
A recent article from Divestopedia entitled “How Does Working Capital Impact the Value of Your Business?” discusses how the topic of working capital can influence the sale of a business. The seller and buyer may have conflicting views on working capital requirements.
Working capital typically can be classified in one of three ways:
When determining which classification is correct, several factors may be taken into account such as industry norms, ratio of revenue to working capital, seasonality, growth capital expenditure requirements, inventory turns, accounts receivable days, accounts payable days, credit or cash available, and purchasing discounts.