1) The fair market value of a business from a professional valuation report should not be the listing price for the business.
A fair market value of a business is what a reasonable person/company would pay without considering any special circumstances. That is the proper way to estimate the likely sales price from a legal perspective.
However, a business owner typically wants to sell to the person or company that has the best potential to earn profits on this business. This will be a person or company that has assets that they can leverage in combination with this business to produce greater value than before - the Strategic Buyer Consequently, a business owner should be looking for potential buyers with special circumstances that might justify a higher price than the valuation.
This should be an important consideration in setting the listing price. There can also be special circumstances that reduce the likely sales price below what the valuation shows. A motel at the edge of Death Valley may have a low vacancy rate and solid profits, but there are likely to be fewer potential buyers of motels that want to live near Death Valley, than a motel in San Diego with similar earnings potential.
2) Business owners should start their exit planning at least 3 years before they plan to sell.
The central financial maxim of most established, privately held businesses is to minimize taxes. The company financials and tax returns reflect this strategy. A key element to exit planning for most owners is how to maximize the value of the company (with the possible exception of family businesses that will stay in the family).
Maximizing the value of the business requires a significant shift in focus from tax minimization, and needs a period of transition of at least 3 years. Potential buyers will almost always want to see the last 3 years of tax returns.
3) The strategic buyer is the company that anticipates making the most profit from combining with your business.
If their worst enemy is their biggest competitor, then that company may have the most to gain from buying the owner’s company. In effect, the biggest competitor may be the Strategic Buyer willing to pay the most.
Valuation is a science to estimate the value of a business if sold with no special circumstances. When an owner gets ready to sell the business, he/she needs to focus on identifying those companies that have special circumstances that would produce the greatest flow of earnings. It is up to the owner to get a piece of that greater future pie.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Helen Yoo: Escrow & Bulk Sale Services - Southern California
New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.
|Diane Boudreau-Tschetter: Escrow And Bulk Sale Services
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
|Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services
Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.
|Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses
Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.
|Larry Larsen, Broker, Laundry Specialist - Orange, LA Counties
I have over forty years of experience in the sales, ownership, management, and construction of coin laundries. He is a licensed broker active in the sale of coin laundries, a licensed insurance agent specializing in coin laundry insurance.
|Chris Seaman, Business Broker - San Diego County Area
Founded in 1994, First Choice Business Brokers has accelerated to become one of the most successful Business Sales Organizations in the world. Our team of agents have gone through extensive training to become experts in the field of business brokerage. Call Chris at 858-578-4111 for more info.
|Joe Sandbank, Esq. - Legal Services
I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process.
|Christina Lazuric, CBI, Business Broker - Orange County
California's Premier Brokerage for Selling Orange County Service Based Businesses since 2005! C.B.B. provides a step by step approach to Business Brokerage, Mergers & Acquisitions, Business Consulting and Valuations. We work on creating the best possible presentation for your business!
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