20 Apr Around the Web: A Week in Summary
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A recent article from Forbes entitled “10 Things To Consider When Selling Your First Company” offers advice for business owners who are contemplating a sale. While sellers often focus on their side of the deal, it is important to think about the deal as a whole including the buyer’s side.
To help foster a win-win deal, consider the following:
- If you like an acquirer, spend time with them in person
- Understand the acquirer’s motivations
- Understand the acquirer’s business model
- Be honest about your growth prospects
- Build a model they can believe in
- Refer to objective standards of value, such as earnings multiples or asset values
- Make concessions that are easy for you and of high value to them
- Don’t be afraid to ask for what you want
- If non-financial terms are meaningful to you, get them in the contract
- Get legal help
A recent article from Entrepreneur entitled “The 4 Biggest Red Flags to Look for When Buying a Business” discusses what business buyers should watch out for when evaluating a business opportunity. This is a big investment that can go sour if a buyer gets emotional and ignores the warning signs.
When conducting buyer due diligence, watch for these red flags:
- Declining sales figures
- High-pressure sales pitch
- Behind on taxes
- Questionable past
A recent article from Fast Company entitled “How to calculate your business’s value: Here’s what investors are looking for” discusses how the value of a business is determined, what can decrease value and what can increase value. It is important to know this well in advance of selling your business so that you can determine what it is worth and work to increase the value before selling.
A primary driver of business value is EBITDA – earnings before interest, taxes, depreciation, and amortization. An appropriate multiple is applied to EBITDA to calculate value. However this is not the only thing that impacts value.
Factors that can decrease value include low margins, high employee turnover, broken equipment, and a lack of new customers.
Factors that can increase value include new equipment, long employee tenures, attractive industries, increasing sales, and patented technology.