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IS IT IMPORTANT TO PROPERLY PRICE A BUSINESS FOR SALE?
Absolutely!
Proper pricing is one of the most important factors in determining whether a business will sell or not. Proper pricing accounts
for the true economic performance of the business, which allows the seller to fully benefit from the sale, while not overpricing
the business, which will ensure that real buyers are able to benefit fairly. Proper pricing of a business for sale is achieved
by working with professional business brokers and third-party valuation firms.
WHAT IS THE IMPORTANCE OF A THIRD-PARTY
VALUATION??
It's simple. Buyers are skeptical about the information that business owners provide. Buyers are also
skeptical of information provided by brokers. This skepticism is healthy and natural. To help minimize the buyer's concerns
and to reduce the concern about conflicting interests of brokers, third-party firms have stepped in to provide a more objective
analysis of the business.
HOW CAN YOU PROPERLY PRICE A BUSINESS FOR SALE??
There are many ways to price
a business. The most appropriate way to price a business is to employ a justification for purchase price test. This method
provides the buyer and seller an objective standard to determine the reasonableness of the suggested purchase price. In short,
if the buyer can receive a fair return on investment for the amount paid as a down payment, then the business is priced fairly.
BBN Affiliate Brokers are trained to help buyers and sellers understand how the proper price provides a fair return on investment.
CAN I FIND A THIRD-PARTY COMPANY TO PRICE MY BUSINESS?
Business owners should employ professionals to assist
in the valuation of their business. No one knows more about a business than the owner. Similarly, BBN Affiliate Brokers
are trained to assist business owners with "recasting" the financial statements of the business. This "recasting" is critical
to uncovering hidden expenses that cover up the true economic performance of the business. BBN Affiliate Brokers are professionally
trained to help owners recast their financial statements.
WHO CAN HELP ME WORK WITH A THIRD-PARTY COMPANY TO PRICE
MY BUSINESS?
Competent business brokers ordinarily have professional relationships with third-party valuation firms.
In addition, business brokers often have certification of continuing education that qualifies them to help you "recast" your
financial statements to find some of the hidden items that can reflect the true economic performance of a business. BBN Affiliate
Brokers work with valuation firms and most are certified to help you "recast" your financial statements.
DOES IT
COST A LOT TO HAVE MY BUSINESS VALUED BY A THIRD-PARTY COMPANY?
The short answer is no. It is important to understand
that there often are costs that must be incurred to prepare a business for sale. The number one cost is a third-party valuation.
Many brokers can get preferred pricing because of good relationships with valuation firms, but the valuation firms charge
brokers for the service. This cost is passed along to the business owner as a part of the cost of preparing the business
for sale.
While it is impossible to say exactly how much it will cost any given business, business owners should
be wary of companies that charge tens of thousands of dollars to value their business. Also, be wary of companies that rely
heavily on projections. Competent brokers know that buyers buy on the historical performance, not what might happen in the
future.
WHAT IS THE DIFFERENCE BETWEEN "BOOK VALUE" AND "FAIR MARKET VALUE" OF A BUSINESS?
The "Book Value"
of a business is an accounting view of the value of the assets of the business. "Book Value" is not an accurate economic
perspective. It considers arbitrary deductions from the value of items owned in the business. Therefore, "Book Value" only
considers the skewed accounting view of the value of the assets and does not consider the income that the assets generate.
The "Fair Market Value" considers the true economic value of the assets. There are a number of ways to arrive at
the true economic value and most professionals employ several techniques. "Fair Market Value" also considers the fact that
some assets generate income for the business. Therefore, "Fair Market Value" is what buyers consider, what banks lend on
and what sellers can expect to be paid for.
WHY IS FINANCING AN IMPORTANT PART OF THE SALE OF MOST BUSINESSES?
Whether
a Commercial Lender, i.e. bank, or Seller Financing, i.e. the owner finances the sale, a portion of the sales price of virtually
all businesses is financed. There is a simple reason for this. Buyers want to invest the money they have wisely. If they
can leverage their cash and finance a portion of the sales price, the Buyer will be able to acquire a bigger business with
more cash flow. So, Sellers should understand that Buyers want to optimize their investment and financing permits that to
happen.
WHAT DOCUMENTS DO BANKS WANT TO "PRE-APPROVE" A BUSINESS FOR A LOAN FOR SALE?
Most banks look for
three years worth of financial statements and business tax returns, as well as interim financial statements, and a third-party
valuation. BBN.Affiliates.assist business owners in obtaining third-party valuations.
WHAT DOCUMENTS DO BANKS
WANT TO "PRE-QUALIFY" A BUYER FOR A LOAN TO BUY A BUSINESS?
Most banks ask for 3 years worth of personal tax returns,
personal financial statements, and a resume of the buyer in addition to a third-party valuation of the prospective business
for acquisition.
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