Business Valuation – Just How Much is Your Business Worth?

“HOW MUCH IS YOUR BUSINESS WORTH?”

Valuing Your Business –

So, how much is your business truly worth? Do you know 9 out of 10 business owners have little idea what the true value of their business is? Yet nothing is more important that getting this right.  Valuing a business can be very complex. In fact, a business can have more than just one value. It depends entirely on the seller or buyer’s perspective.   For example, a business can have a different value to an owner-operator buyer than it does to an investor buyer, or to a competitor wishing to expand, or to a supplier or customer wanting to vertically integrate. Unfortunately, it can also have quite a different value aain to a liquidator!   The better professional business valuers take the key drivers into account when they value a business.   (You can value your own business quickly and easily with the Small Business Appraisal Tool found in The Business Appraisal and Marketing Kit)

-The Key Drivers of Business Value.

The better professional business valuers consider the following factors when valuing a business:

- Margin.

The greater the positive difference between all business costs and sales, the more valuable is a business.

- Growth.

A growing business has a higher value than a business that is static or in decline.

- Asset utilization.

A business that uses the least amount of assets and uses them efficiently is more valuable.

- Financial engineering.

A business that actively seeks to optimize its weighted average cost of capital (WACC – the mix of equity and debt funding the business carries) and minimize its working capital is more valuable.

- Relative business risk. A business that is comparatively less risky when assessed against the business risk factors are more valuable.

Business Risk Factors - The following is a comprehensive list of risk factors used for valuing larger businesses:

° The length of time the company has been in business

° The length of time under the current ownership

° The number of employees

° The quality/appropriateness of the business location

° Condition and quality of plant and equipment

° The tenure and security of occupancy

° What working capital is needed to fund growth

° Threat of debtor defaults

° Business sales growth (past and future)

° Future industry growthpotential

° Desirability of the business (is there a demand for this type of business)

° Are there management control systems in place

° The documentation of systems;  jobs, procedures, policies

° Quality of the customer base and customer retention

° Level of competitor rivalry

° Advertising requirements

° Geographical scope

° Supplier power

° Buying power

° Threat of new entrants into the market

° Threat of substitutes on the market

° Degree of market focus

° Threat of litigation

° Customer loyalty

° Government regulation

° Owners’ working hours

° Owner dependency

Note – This is just a small part of the information that Business Appraisal and Marketing Kit will teach you about valuations.

However, for smaller businesses fewer risk factors are taken into account to arrive at an estimated business appraisal. The Small Business Appraisal Software supplied with the Business Appraisal and Marketing Kit uses the following 10 risk factors to calculate a business appraisal:

°The time the business has been in existence

° The quality and consistency of earnings

° Industry growth/expected growth

° Business sales growth over the last 3 years and expected in future growth

° The degree and intensity of competition

° Suitability of the business location

° Supplier concentration (relying on just a small number of suppliers is very risky)

° Buyer concentration (relying on just a small number of buyers is very risky)

° The difficulty of entry for new competitors

° Employee quality and stability
Why Do You Need a Business Valuation?

A business valuation will determine the value of your business and who your potential buyers may be and why they are interested in acquiring your business. The following are some things a business valuation is used for:   – Buying or selling at fair investment or market value   – Divorce   – Security for a loan at fair market value   – Selling or gifting to a minority party interest in the business (e.g. an employee you want to reward)

What Types of Valuations are Available?

A good valuation can cost you a lot of money.  An average business valuation can be anything around $3,500. But there is a cost-effective alternative you can successfully, at long last, do yourself. The Small Business Appraisal Tool that comes with the Business Appraisal and Marketing Kit does it all for you using simple, easy to follow steps.  There are many valuation techniques and The Kit has simple easy to follow explanations for the:

- Discounted Free Cash Flow Method

- Free Cash Flow Method

- Future Maintainable Earnings Method

- Net Asset Backing Method

- Market Valuation Methods

- Comparable Sales Method

- Industry Averages or Rules of Thumb

- P/E Ratios

- Owners Discretionary Cash Flow Valuation Method

- Business Affordability Method
Do It Yourself Valuations - Using the Small Business Appraisal Software program that is included in The Business Appraisal and Marketing Kit you get an accurate, full business appraisal based on the Owners Discretionary Cash Flow Valuation Method. The appraisal program makes it simple for a small business owner to value their business without the expense of other

methods. You take control.

The following is what an accountant says about the incredibly easy to use appraisal software tool included with the purchase of the Business Appraisal and Marketing Kit.

“Valuing a business can be a very subjective process. The business owner invariably thinks their business is worth a small fortune and, of course, the prospective purchaser wants to pay nothing for it. The book and software guide you through the process and helps to determine the appropriate valuation method and earning multiple applicable to your business.   I found the book and software extremely valuable as not only a guide for the small business owner, but a tool that accountants can use to advise their clients. Accountants in public practice are not taught how to value a business. It is something they either pick up from a more senior member of their firm or they attend a workshop specific to the subject.   I highly recommend this as a tool that all small business and public practice accountants should own and refer regularly to.”

Appraising your business is made so very simple using the unique Small Business Appraisal Software.  You can purchase your very own along with the full version of ‘How to Sell your Own Business’ at Business Appraisal and Marketing Kit.

Once your business is appraised and valued then you will need a business for sale legals and contracts kit. You can get a Complete Sale Of Business Legals Contracts Kit here. It will save you thousands of dollars.

YOU CAN SELL YOUR OWN BUSINESS!

There are many reasons for selling a business – Retirement, health, family lifestyle, or you may have built a successful business and the time is right to sell and move on. Whatever the reason, it’s going to be one of the most important business decisions you’re likely to make. The process of selling a business can be involved and complex if you don’t know the correct steps. However, armed with the right information you can successfully sell your own business. And, doing it yourself is more popular than ever with sellers reaping the rewards.

Business owners who sell their own business find it is an exciting and worthwhile task. No one has the knowledge of your business that you do – its unique benefits and day-to-day operations – so who better to sell it? What’s more, business owners place a lot of the importance on reducing and controlling information leakage, maintaining confidentiality and, of course, you avoid the high commission fees paid to a business broker.
What you need to know to sell your business -

The decision is made and you are keen to put your business on the market. What is the next step? What do you need to know about selling a business successfully? Here are some general tips to help you gain a better understanding of the process of selling your own business:

Making the decision to sell -

There is no reason why you cannot sell your own business. It is a straightforward process. While an accurate business appraisal (to establish the correct selling price) is one of the most important aspects of selling your business, some of the other things to consider but not limited to include:

- Preparing your business for sale

- Get your documents in order

- Advertising/marketing plan

- Prepare for buyer inquiry

- Understand potential buyers

- Due diligence
Preparing your business for Sale -

Selling a business takes planning and preparation to maximize your business’s top sales potential. Give yourself plenty of time to put everything in order – your accounts, systems and your people.

The Business Appraisal and Marketing Kit is a wealth of information and has simple, easy to follow steps to take you through each and every stage of the sale process.
Get your Documents in order -

Documentation covers a myriad of things such as financial accounts. It is important to have the following documents at hand and ready for the buyer presale:

- Confidentiality agreement

- Information memorandum

- Summarized information memorandum

- Buyer Enquiry Form

- Letter of intent

Confidentiality Agreements -

It is important to get a Confidentiality Agreement signed before giving out any confidential

information to a potential buyer. This document binds them to the terms of the agreement. Genuine buyers are fully prepared to go along with and sign the correct confidentiality agreement.

Straight talk:

Make sure you have a Confidentiality Agreement and it is signed before you give any information. We cannot stress this enough.

A copy of a Confidentiality Agreement can be found in

The Business Appraisal and Marketing Kit
Information Memorandum –

The point of the Information Memorandum is to give a potential buyer, details of your business and it becomes a great marketing tool.

The Information Memorandum should make the business sound appealing, and present all the significant information in a straightforward manner so a buyer can determine if they are interested in pursuing a purchase. If they are interested, they will however need further information.

The following are some of the headings from the template for writing your own Information Memorandum:

- Introduction and Summary

- Description of the Business

- Asking Price and Selling Terms

- The Industry

- Your Competition

- Your Products/Services/Customers

- Personnel

- Major Assets

- Business Plans

- Financial Statements

- Appendices
Summarized Information Memorandum -

Once you have completed the Information Memorandum, you should also do a summarized version.

You determine the level of information that you will send. Be certain you have the Confidentiality Agreement signed and returned before sending out such detailed information.

For the full version of the Information Memorandum template and templates for all the forms you need to sell your own business see The Business Appraisal and Marketing Kit. Its simple steps make it easy for any small business owner to follow.

How to Write an Information Memorandum for a Business For Sale

How to Write a Sale of Business Information Memorandum

The Information Memorandum is a marketing document used by the vendor to promote their business to a potential buyer. The aim of the document is to make the business sound attractive to buyers, and also to convey all significant information to parties who are already interested in making a purchase.

A good Information Memorandum will predict all the questions a potential buyer might have about your business. It should contain a description of the business’s history, its past achievements and future prospects, as well as the particulars of its operation.

For more information on Information Memorandum or any aspect of a Sale of Business please go HERE.  It has indispensable insights, tips and tricks to help you get the most for your business AND save yourself thousands in the process.

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