The Complexities of Business Valuations
Many buyers and sellers are not aware of the complexities that go into appraisals for businesses. To get the most accurate results, a business needs to be looked at from a variety of angles. When completing a business valuation, we look at everything from comparable businesses to EBITDA. There are a lot of nuances involved that are customized depending on the business at hand. Without looking at a wide range of factors, you could accidentally get less for your business than what it’s really worth.
What Will Be Important for Your Buyer?
When you’re selling a business, part of the fair market value of your business relates to benefits that your buyer will receive. Obviously, your valuation will include factors such as market share and profitability that a buyer will enjoy. But there are also less obvious factors. For example, is there potential for the business to expand beyond its current niche? What is the competition like? What about access to customers?
Current Trends
Also brought into consideration should be trends that will impact the business. These trends could be everything from trends in technology to economic or social changes. In some cases, business trends might make a business much more valuable. For example, due to the recent pandemic and fast adaptation of online conferences, companies that integrated video conferencing had a major edge over those that did not.
When business owners are aware of emerging market trends, it allows them to develop new offerings to meet current demand. In turn, this can boost business growth and increase a business valuation.
The Workforce
Recent workforce issues have definitely impacted the value of businesses across the board. If you have a strong, highly trained and dependable workforce, it will help to increase the value of your business. If your staff members are customer-facing, positive customer experiences will drive revenue growth. Further, buyers will feel more confident buying a business with a reliable roster of employees.
There are many questions that will affect your buyer and those should be considered in the price you ultimately decide upon. The savviest business owners are always thinking about trends in society and how to work with them to strengthen the value of their business. They will also consider the decisions made by their competitors and how they impacted their businesses for better or worse.
Copyright: Business Brokerage Press, Inc.
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Why Do Sellers Often Face an Array of Surprises?
Experts recommend that sellers prepare years before they plan to put their businesses up for sale, and there are many good reasons why they make this recommendation. A wide range of factors can interfere with the sale of a business, ranging from life changes like divorce and burnout to a new competitor moving into town. Preparing to sell your business in advance will help prepare you for the day you need to sell, whenever that day may be. Now, let’s take a look at a few of the surprises that sellers may face when selling their company.
Time Commitments
Topping the list of surprises that sellers often face is the time commitment involved. As almost any business owner will tell you, it takes a tremendous amount of time and effort just to run a business. Adding the additional variable of putting a business up for sale can be a real strain on a business owner’s time and resources. The idea that one can simply put a business up for sale and “the rest will take care of itself” is very rarely the case.
Most businesses take many months or even years to sell even with considerable effort put into the process by both the business owner and brokerage professionals. Prospective buyers can take up a considerable amount of time to deal with, and this is one of the many reasons it is important to work with a business broker or M&A advisor. A competent brokerage professional has expertise in determining if a potential buyer is worth the time, effort and money it will cost by you and licensed Deal Team professionals such as attorneys and CPAs – vetting a buyer’s ability to close on the sale of your business – saving you a great deal of time and aggravation.
Documentary Requirements
Sellers are often unaware of just how much documentation must be compiled for the Confidential Business Review (CBR) alone. However, the CBR is key in the selling process. If you’re selling your business in the near future, be prepared to compile, create and review a lot of documents.
Shared Decision Making
Of course, there are many other variables that must be considered when a seller makes the decision to sell their business. Minority stockholders or family members with an interest in the business must be taken into consideration.
Typically, sellers are accustomed to handling most of the key decisions regarding their business. This approach might work for running a business, but it can be quite challenging when it comes time to sell. Everyone from members of the management team to lawyers, accountants, and, of course, business brokers or M&A advisors, must be involved in the process.
Owners simply cannot realistically handle every aspect of getting a business ready to be sold. Usually, the requirements of the sale process are too diverse and complex to be handled effectively by one individual.
While the above-mentioned surprises are often the most common, a wide range of other factors can often be unexpected. These factors range from sellers accidentally decreasing the value of their businesses due to failing to maintain normal business operations during the sale which can decrease the value of the business to confidentiality leaks.
Selling a business is a complex process. Many business owners feel that since they are accustomed to the complexities of operating a business that they can handle the complexities of selling a business. The reality of the situation is quite different.
Copyright: Business Brokerage Press, Inc.
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BizBuySell Insight Report for 2022
BizBuySell has issued their latest insight report, which summarizes market growth and trends from last year. In this report, they have several interesting areas to report including a summary of how lower sales prices and rate hikes impacted the value of businesses in recent months. The report can be found at https://www.bizbuysell.com/insight-report/#reportArchive.
Overall Trends in 2022
Buyers currently appear to have some leverage when it comes to the prices of businesses on the market. When comparing 2022 with 2021, we see a 4.7% increase in closed transactions. Comparing it to the year prior, there is a 19% gain. Obviously, 2020 sales were negatively impacted by COVID.
While sales grew substantially in the first half of 2022, there was a decrease in momentum in the second half of the year due to inflation and interest rate increases.
The number of transactions recorded by BizBuySell.com in 2022 are actually fairly comparable to 2021, with numbers of 9054 and 8647, respectively. While the transactions raised 27% and then 14% in the first and second quarters, transactions then lagged in the second half, dropping by 2% and then 12.7%.
Trends Among Business Owners
BizBuySell’s surveys showed that the majority of owners are concerned about rate hikes and inflation. In fact, 53% say that the rate hikes are having a negative impact on them. They also reported concerns about rising SBA loan rates, as many business owners utilize their lines of credit. In addition to that aspect, there are still supply chain issues that are negatively impacting businesses.
The main takeaways from 2022 seem to be a steady but slow progression in growth. Moving into 2023, interest rate hikes and inflation seem to be on everyone’s mind as a prevailing factor that will have an impact on sales and growth.
It’s Never Too Early to Create an Exit Plan
The report also reveals that according to data acquired by BizBuySell, only 53% of business owners say they have an exit plan. Only 58% of owners reported knowing what their business is worth. If you are a business owner and would like to find out more about what your business is worth, a business broker or M&A advisor can assist you with that information.
Copyright: Business Brokerage Press, Inc.
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