"The most important aspect of learning how to sell or buy a business, is learning how to value it"
If the decision to sell or buy a business is upon you, I assure you it is one of the biggest life decisions you'll make. Especially if you are doing it for the first time, your new life with or without the business can be quite a shock to the system when the excitement of the transaction wears off.
With all that hard work ahead of you, or behind you, it’s natural that you will want things to go as smoothly as possible, and of course you will want to achieve the price possible.
If you are a buyer or seller, before you take the leap, it is really important that you learn how to value a business otherwise you could make a decision that could cost you hundreds and thousands, or for some even millions of dollars. It is really important that you get an accurate assessment.
"No matter how hard you try, as a buyer or seller, you are already in a conflicted position and you run the risk of either overvaluing or undervaluing the business"
In order to do so, you need some help with this from an expert. There are generally two Professions people turn to, to understand the value of a business, a Business Broker or Accountant.
The best person to do this is an experienced Business Broker. You should choose a professional to review the business that has a thorough track record in successful business sales.
Your Accountant is perfect for tax planning and compliance, however when it comes to valuing a business, they lack the in depth business sales experience, and this is where the real drivers of buyers and sellers exist.
"We have put the same business information in front of two Accountant's and the Seller's Accountant valued the business at double our valuation, and the Buyer's Accountant valued it at half as much! - Coincidence?"
There are several key steps you are going to take on your journey to selling or buying a business.
After an initial assessment of your buying or selling needs and criteria, we recommend that around 6 months to buy or sell is a realistic time to carefully prepare and execute a successful business transaction.
Valuing a business is a complicated process. It's not just a matter of reviewing financial information, and a business can be worth so much more or less than just the numbers on a page.
What does a business review process look like? Well it should normally takes 2 to 3 weeks.
Research Phase
You Business Broker should spend time learning about the business and market. They should spend time learning about how the business functions and assess the inherent strengths and weaknesses that will be realised in the market.
Financial Review
Reviewing the financials should include identifying any eligible normalisation's. Often, we find that financial accounts lodged for tax purposes, do not accurately reflect the net profit that is available to a third-party owner.
Understand the Process
Your Business Broker should educate you on the buying or selling process ahead, so that you know exactly what you are in for, and your expectations are set early on in the piece. In some instances a good Broker will give you advice that there needs to be some changes made to you or the business, before you start the sales process.
Determine the Price and Strategy
Your Broker should present you with their findings, and it will be really important that you are on the same page in terms of price expectations, and the steps in marketing the business or the buyers agent strategy. A sale or purchase can be doomed before it starts if you don't see eye to eye with your Broker. A good Business Broker should never work with a client, if their expectations are on different worlds.
Good Luck!
Once you have learned how to value a business with an expert, you are in a great position to agree to the right offer, and achieve a transaction within a reasonable time frame. Don’t be one of those buyers or sellers that has been in the market for years with uninformed expectations.
Good luck with the first of several steps in your decision to sell your business.
From all of us at Vision Brokers and Advisors, we really look forward to working with you.
Daniel Kogan
(m) 0401 620 918
(t) (02) 8923 2632
Dan Levitus
(m) 0450 326 146
(t) (02) 8923 2632