Tag Archives: sell my business Minnesota

How to Value a Business

At Opportunities in Business, we’ve been appraising small, closely-held businesses of all kinds for over 30 years. While the most obvious reason to appraise a business is when it’s changing hands in a buy/sell agreement, business appraisals are also needed for estate planning, stockholder disputes, tax disputes, and divorce settlements.

“Fair market value” of a business won’t be found in your financial statements or tax returns: It’s much more complicated than that, and ultimately depends on buyer perspective.

Business valuation is complex, subjective, and very dependent on somewhat abstract factors such as location and anticipated earnings. Here are three primary strategies we rely on, as a professional business brokerage firm. A thoughtful analysis will evaluate from all three perspectives to triangulate a realistic value for your company,

Assets-based analysis

For the most basic evaluation, calculate the value of a business’s hard assets, minus its debts. For example, a building contractor owns trucks, tools, and equipment: estimate the resale value of these hard assets and subtract business debts to reach an asset-based value. This method tends to establish a low company value because it doesn’t take into account the vital but intangible “goodwill” accrued by the company.

What is “goodwill?” According to Investopedia.com, “Goodwill is an intangible asset… The value of a company’s brand name, solid customer base, good customer relations, good employee relations and any patents or proprietary technology represent goodwill. Goodwill is considered an intangible asset because it is not a physical asset like buildings or equipment.”

Companies typically have at least some goodwill–for example, a thriving restaurant or spa–so an asset-based valuation will be too low.

Comparables

Another common valuation technique is developing metrics based on the sales price and profits of similar companies. For example, accounting firms may trade at one times gross recurring fees while home/office security businesses may typically sell for two times their earnings. To make an accurate analysis, evaluation begins by selecting a group of companies which share industry, size, and region. Industry conferences and publications are good places to get a starting point on this multiplier.

The usefulness of comparables is limited, however. The resources for comparable data do not provide enough details to ascertain whether the businesses used for comparison are really comparable.

Earnings based methods are the most common methods used for businesses which are profitable. The various methods first define the earnings of the business, and then assess risk factors to determine multiplier and capitalization rates.

Ultimately, a business is like any commodity. It is worth what a buyer will pay for it, and if they have a strategic reason to acquire it, the sky may be the limit. However, having a professional evaluation of the business value is a crucial component to engaging in a successful sale.

Want to learn more? Give us a call today at 612-331-8392!

How to Prepare Your Business to Sell

Selling a business is a milestone most business owners will eventually encounter. Whether motivated by retirement, potential profit, or external circumstances, selling a business is a high-stakes undertaking and demands plenty of due diligence to ensure the best outcome.

Even if you’re not ready to sell, it’s smart to view your business through a buyer’s lens. Just as you’d want to keep your home in good condition in case you suddenly need to put it on the market, you benefit from a business in which loose ends are tied up and books and documents are in order.

Here are 5 steps to take to ensure that your business is ready to go on the market and attract top-value offers.

First…Obtain a business valuation. Hire an experienced professional entity to analyze your business and establish its value. Business brokers, investment banking firms and accounting firms offer this service. Find one with experience in your industry, and get an objective assessment of your business’s financial situation, market position, strengths, and weaknesses. Opportunities in Business has been doing valuations for over 30 years.

Second…Put your books in order. Buyers typically require at least a three-year financial track record, and it’s important that your taxes are up to date and in order.

Third…Review and organize all legal paperwork. Track down all permits, leases, incorporation papers, licensing agreements, vendor contracts, customer contracts, etc..

Fourth…Focus on sales and growth. Buyers will closely examine the growth potential of your company. As you ramp up to putting your business on the market, it’s a good strategy to grow your sales efforts and invest in growth initiatives. Don’t focus exclusively on gross revenue; most buyers will rely on net or EBITDA (earnings before interest, taxes, depreciation, and amortization). An attractive EBITDA is key to a higher price.

Fifth…Perform a SWOT analysis, defining your strengths, weaknesses, opportunities, and threats. Buyers will negotiate by targeting your weaknesses and threats: you’ve got to be prepared to defend yourself, and to counter with emphasis on strengths and opportunities. Identify and address problems now. If you have fires, put them out. If you have skeletons, rehearse how to explain them succinctly and clearly, and then move on.

If you’d like to talk to an expert about your business and what you need to do to sell it, please give us a call at 612-331-8392.

How to Select a Business Broker

Smart sellers engage business brokers to maximize value and ensure a smooth transaction. As you shop for a business brokerage firm, it’s your responsibility to ask the right questions so you select the right party to sell your business.

Here are some questions to get you started, grouped into three general categories: experience, marketing, and administration. Choosing the best broker for your situation is crucial to getting top dollar with minimal headaches, so take your time interviewing candidates.

EXPERIENCE

How long have you been a business broker?

Experience is crucial in this business–it’s a huge part of the value proposition you’re paying for with your commission. If the agent you’re interviewing doesn’t have a long track record, they can still do a good job providing that they get adequate support from their highly experienced colleagues. Ask detailed questions to confirm that you’ll be benefiting from experienced professionals. Also, confirm how long they’ve been with their present firm. While it’s normal to change firms occasionally, excessive transitions suggest a problem.

In what industries have you sold businesses?

If the broker hasn’t sold any businesses in your industry, they can still do a good job if they exercise due diligence and learn about the field. Ask them to share their experience in your industry. If it’s new to them, they should explain how experience with other clients will contribute to success, and how they’ll come up to speed in your industry.   

How many listings do you have?

A qualified business broker should have a number of active listings at any time–generally between 15 and 20. If their number is on the low side, find out why. If their number is on the high side, ask them about the size and performance of their administrative and support staff.

How many businesses do you sell annually?

A typical annual volume is eight to ten businesses a year. If the number is lower, find out why. If they sell very large businesses, a smaller number may be acceptable, but it’s important to learn more.

How many businesses have you sold in total?

More sales equals more experience. Again, if your prospective broker doesn’t have extensive experience, but has excellent support from colleagues and the resources of a large, established firm, she or he may be a suitable candidate.

What is your closing ratio?

When you get an offer, you want it to close successfully. Find out the closing ratio of your candidate, and ask what pitfalls they’ve encountered in the past which have disrupted closing, and what steps they’ve taken to address the problems.

Do you have testimonials?

Ask for testimonials and contact references. However, remember that business sales are confidential and brokers cannot disclose the information on any completed transactions without the seller’s permission.

MARKETING

How do you determine the value of my business?

A professional valuation of your business is one of the main benefits of retaining a business broker. You want a brokerage which stringently determines your business’s worth. They must consult industry standards, examine business comps and run calculations to come up with an accurate and realistic number. They also need to be transparent in this process, sharing the data with you to justify their conclusions. Correct pricing is crucial to a timely sale.

Do you have a database of buyers? How big?

A digital database sorting potential buyers can speed up a sale.

ADMINISTRATION

What’s your process for qualifying buyers?

Brokers have a duty to protect your privacy, so they shouldn’t share details about your business recklessly. Before the firm shares financials on your business, what measures do they take to qualify buyers?

Do you assist with obtaining financing?

Financing has undergone big changes in recent years. Make sure your broker knows what financial institutions are interested in financing your business.

Do you have reliable attorneys, lenders and tax specialists?

Deals often disintegrate because other parties such as attorneys, lenders and tax specialists drop the ball. Seek a firm that has established relationships with these professionals. There are a lot of moving parts in a high-stakes transaction, so clear expectations and a proven sequence of steps are crucial. For example, to minimize tax liability they must engage tax specialists to assist with structuring the deal before the business changes hands.

Check-out our recent list of businesses we’ve sold! 

Selling a Business Via a Business Brokerage Firm: The Five Big Questions

I’m concerned about confidentiality. Will the brokerage protect my privacy?

Experienced business brokers in reputable firms have systems in place to protect the confidentiality of clients and details about their businesses. To further protect seller interests, prospective buyers must complete binding non-disclosure and/or confidentiality agreements and provide financial statements and bank references before they are granted access to essential business information.

Isn’t a business broker just the same as a real estate broker?

It’s true that business brokerage began as simply a subset of real estate brokerage about four decades ago, but the two industries have diverged completely since then. While business brokers in Minnesota (and many other states) are licensed identically to real estate brokers, the business brokerage industry has such singular requirements and challenges that it doesn’t functionally overlap with either commercial or residential real estate brokerage. As with any specialization, expertise is the result of many years of experience focusing exclusively on the niche.

Can’t I can sell my business myself? How does a business broker add value?

Like a good accountant, lawyer or other professional, business brokers contribute value according to their experience, education, and knowledge of the requirements and best practices of their industry. Yes, you can sell your business yourself: likewise, you can also do your own taxes and represent yourself in court, but doing so successfully requires a huge investment in time and education. It also comes with potentially costly risks.

Thanks to our experience and training, we know:

  • how to value a business
  • current market conditions
  • where to find reliable data
  • the challenges and issues likely to arise
  • where to find money for business transactions
  • the crucial details and checklists to complete a transaction smoothly
  • how to comply with legal regulations

Further, we serve as a buffer between the seller and buyer, engaging both parties with effective negotiation skills based on extensive experience and industry knowledge.

But why are the fees so high? Is it worth it?

Fees are based on a percentage of the selling price and have remained constant for many years. Hiring a professional business broker has three concrete financial benefits for the seller:

  • We expose the business to many more potential buyers than an individual seller can, enabling a quicker sale at a higher price
  • We have the expertise to accurately evaluate the business and ensure the listing is priced right and attractively described
  • We handle the details of the transaction with expertise to protect both buyer and seller, preventing costly mistakes, misunderstandings or misrepresentations

My business is special — do you have experience selling businesses in my industry?

At Opportunities In Business, we’ve got over 35 years of experience and we have sold in every SIC code or industry. Browse our listings and you’ll see successful sales of businesses from wholesale manufacturing to laundromats to credit card processing to cafes. With every account, we dive deeply into the business and the industry. Our standard process involves gathering lots of information and asking essential questions to fill in any gaps. Selling the business relies on a different skill set than running the business. We’ve yet to encounter a business so unique and specialized we couldn’t adequately represent it.

Check-out some of the recent businesses we’ve sold! http://oibmn.com/listing_status/sold/