SELLING A BUSINESS
Selling a Business: Business Valuation and Exit Strategies
Coming up with a valuation of your business is a complicated endeavor. While balanced account sheets and favorable perceptions are both significant in the valuation of a business, the success of a sale often comes down to price. That’s where the art and science of valuing a business come in. Indeed, a great deal depends on how the company is perceived. However, a few fundamentals also feature in most company valuations. The process typically begins by establishing the profitability of a company at the time of valuation. Then, an assessment of the risk profile of the business is created to determine the appropriate cost of capital to apply. Valuations of earnings are important here, and should be considered before many other valuations, including before interest, taxes, and depreciation and amortization. With these valuations made clear, potential buyers can compare the values of similar businesses.
A year-end snapshot does not illustrate a company’s business profile during the year. A cash flow analysis of the year and a future projection are much more advantageous. Ultimately, the market is the true judge of a company’s worth. The prevailing market conditions, competition, and the strategic need of potential buyers will then influence how far beyond a formal or purely financial valuation a buyer may be willing to stretch. Indeed, there is a science behind valuing a business, and specific valuation methods are at the heart of the process. However, these methods should be assessed with a sensible eye. A corporate attorney can help you stand back and more objectively determine where the true value lies. It may be in the brand, or perhaps in its technology, or something else. This is where a knowledgeable corporate attorney can identify and maximize the ultimate valuation.
What you put into selling a business is what you get out. Consequently, it pays to plan ahead, particularly when it comes to devising your exit strategy. Indeed, it is never too soon to start planning an exit strategy. Corporate lawyers and experienced entrepreneurs will tell you that you need to have a strategic plan as to how and when you shut the doors and move on.
A well-thought-out exit strategy can help business owners to market the business and maximize the value successfully market to potential investors or buyers. Although you may have an emotional attachment to your business, prospective buyers don’t. So, when it comes to parting ways with your business, you also need to ensure it is well-equipped to survive without you. Knowing when to sell is significant, as well. If you hang on too long, it may actually harm the business and decrease its value.
It’s a tough and often emotional decision to hand over the reins, even when you know a new owner can turn your venture into a thriving company. To that end, seek the services of a qualified and experienced legal advisor who can view your situation objectively. Your lawyer can put all the ducks in a row and ensure all the loose ends are tied up. Your attorney can also work to ensure that the sale of your business nets you the most emotional and financial satisfaction possible.