Obtaining a Fair Market Value for Your Business
Fair market value can be used as a way for business owners to “bridge the gap between the valuation they feel they deserve and that which they’re likely to receive.” In an October 2018 Divestopedia article, Dave Kauppi says this increases the chances of a deal actually taking place. Let’s turn our attention to some of the key points in Kauppi’s informative article.
Understanding the Reality of Selling a Business
Few businesses actually sell on their first attempt. Just 10% of businesses that are for sale are actually sold three years later, according to the article. This low percentage underscores the value of working with a business broker. Selling a business can be difficult under even the best of circumstances. The process is complex, and most sellers have never actually sold a business before.
Business owners should have realistic expectations regarding valuation. The market doesn’t care “how much money you need for retirement,” or how much you’ve invested.
Four Points to Consider
Business owners should understand the few business characteristics that will ultimately drive the sale. The four key factors to consider: contractually recurring revenue, durable competitive advantage, growth rate and customer concentration.
There is a lot packed into these four points, but here are a couple of big takeaways. In terms of customer growth, if a large percentage of your business is derived from a single customer, then that is going to be seen as a problem. As Divestopedia points out, if your company is dependent and partially dependent on a single customer, then you can expect a lot of pressure for you, as the business owner, to stick around a lot longer to ensure that this key customer isn’t lost. If intellectual property, such as software, is involved, then things can get even more complex. In the end, determining value in technology-based companies can be more challenging.
In the end, working with a seasoned business broker, one that understands valuation and how best to get there, is a must. You want to receive the best possible price for your business. An experienced business broker will help you understand how to navigate the complex process of determining a price. However, and most importantly, a business broker will help you achieve a fair market value, so that your business doesn’t remain unsold for years.
Copyright: Business Brokerage Press, Inc.
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