Thinking Of Selling My Business: What Factors Creates Value And Drive Price?

Comments & Replies: 2     Views: 9729     Posted By: Peter Siegel MBA  Peter Siegel MBA: BizBen Founder, Lead Advisor

There are a lot of misconceptions about what enhances the value of a business. The following factors in this Discussion are aspects of a business that really drives its value and pricing. A business owner asked me this question today so I wanted to get others view points as well in this Discussion.

Topics: Business Valuation, Selling A Business     Tags: business valuation, for sale by owner, selling a business



There are a lot of misconceptions about what enhances the value of a business. The following are aspects of a business that really drive its value.

Value Drivers Are:

1. History And Longevity

Being in business for a long time isn t necessarily a guarantee of a successful business, but it s a good indicator. Having a compelling history behind your business doesn t hurt its value either.

2. Historical Profitability

This one is a no brainer. Being in business for a long time and being profitable is a great combination. Historical profitability gives the buyer confidence in future profitability.

3. Good Books And Records That Are Defendable

We just talked about historical profitability. In order to prove you have been profitable you need to keep good books and financial records that can be verified.

4. Reputation

A good reputation is worth its weight in gold. It's an element of the goodwill your business has developed over time and it adds value to it. A good reputation means people know your business and have a positive view of it. That means they are more likely to be repeat customers and recommend your business to friends and family. That could reduce the amount a new owner will need to spend on advertising and marketing and again gives them confidence they are buying a business that will give them a good return on their investment.

5. Location And Accessibility

Is your business ideally located and easily accessible? If not, it could be effecting your bottom line as potential customers decide to go elsewhere and that could affect your businesses value.

6. Staff Tenure

Having a staff both with experience and tenure that is willing to stay on after transition of ownership is priceless. This saves the new owner time and money finding and training new employees.

7. Market Desirability

Is your product or service desired by the public? The more it is the more value your business has.

8. Potential Future Earnings And Growth Opportunities

How much potential does your business have for future growth? The more potential the more value it has to potential buyers.

Contributor: Transactional Attorney

In addition to Peter's excellent points, I've found that there is another value driver that most Sellers either overlook or purposely ignore, which is how easily the "things" that generate the business' value can be transferred to a new owner.

For example, I was working with a buyer on the acquisition of a business which had a number of long-term contracts where the business supplied finished goods to specific customers. On the surface it looked like a great deal, with long-term, stable income guaranteed by contracts with large companies.

But when we dug deeper into the fine print, most of those contracts had provisions that either required written approval of a transfer of the agreement or prevented them from being transferred entirely. While the Seller suggested that the Buyer could just continue to operate under the same trade name and not raise any red flags with the customers, the agreements made it clear that that any change of ownership would be considered a transfer of the contract that would require approval.

The deal ended up falling apart because we couldn't get comfortable that the contracts would be transferable and the Seller refused to allow us to make that a contingency to the close of the sale.

What could the Seller have done differently? First, they could have proactively talked with their customers about transferring the contracts properly and helped the Buyer get a comfort level that there wouldn't be any issues. Second, they could have agreed to make the deal contingent on the contracts being assignable to the buyer.

The bottom line is that even if a business checks off all of the other value points, if that value can't legally be transferred to a buyer (or if there's some risk involved in a transfer) then you're going to have trouble getting maximum value as a Seller. Taking the steps to address those issues ahead of time can help increase a business' value and make it less likely that a buyer will pull out after doing their legal due diligence.


  Helpful Resources To Assist In Selling And Buying California Businesses
Brad Steinberg, Business Broker: Laundromat Specialist

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

Shalonda Chappel: Escrow & Bulk Sale Services - Southern California

Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.

Helen Yoo, New Century Escrow - Escrow Services In 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.

Elizabeth McGovern: Escrow Services - San Francisco Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA

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.

William F. Ziprick, Attorney: Legal Services For Buyers And Sellers

Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of closings. Office: 909-255-8353, Cell: 509-951-7230.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews
Is There Such A Thing As Paying Too Little When Buying A Small Business?

We all understand the idea of paying too much for a small business. But is there such a thing as not paying enough? That seems like an odd notion, but I'm familiar with situations in which a buyer acquired a small business for a figure substantially under what probably was market value.

What Are Business Buyers Biggest Mistakes? The Pros Examine The Most Common

A business buyer in our ProBuy Program searching to buy a California business asked me to sum up what I though the biggest mistakes business buyers make when they search for and bought a small business. I asked BizBen ProIntermediaries their thoughts on the matter and received a diverse response.

If You Plan To Offer Seller Financing: 3 Things Owner Sellers Need to Know

When selling your business, offering seller financing is a great way to help your business standout from others on the market and it is also a good strategy to consider that can help you close a sale. Peter Siegel, MBA (BizBen ProSel Program & Financing Expert) explains. Reach him at 925-785-3118.

Valuing A Business - Do You Add The Inventory Amount To The Price Or Not?

A business buyer asks how to handle the inventory amount in the purchase price of a business. Do you add the inventory value to the business value? Peter Siegel, MBA (ProBuy & ProSell Program Advisor - Lead Facilitator ) answers this question with the BizBen Network of advisors and resources.

Tips When Using Escrow Bulk Sale Services When Buying Or Selling A Business

The final part of the business for sale transaction is the escrow and bulk sale process by Peter Siegel, MBA (Business Purchase Financing Expert, ProBuy & ProSell Program Advisor) answers questions and describes the escrow and bulk sale process. Peter can be reached direct at 925-785-3118.

Computing All Add Backs: Defining Adjusted Net Income When Buying A Business

The use of add backs & adjusted net income is common among sellers of businesses when showing their financial information/performance. But buyers are cautioned to review financials and tax returns/documents closely. Peter Siegel, MBA with BizBen (ProBuy & ProSell Advisor, Lead Facilitator) explains.

Why Deals Fall Out: Unrealistic High Asking Prices Are Usually The Reason

The unfortunate truth is that approximately 50% of all small business sales transactions fall through. While failed transactions can happen for a variety of reasons, Peter Siegel, MBA (BizBen Founder & Lead Advisor) discusses the most common reason deals fall through; unrealistic asking prices.

How Many Listings Is Too Many For One Broker To Handle? Is It 5? 10? 20?

Peter Siegel, MBA in this Vlog/Podcast discusses how many listings is too many for one business broker to handle at one time. Is it 5 is it 20? I recently had a coaching call with one of my BizBen broker clients who asked that question this week. There are many factors that go into the answer.


Escrow Services Diane Boudreau-Tschetter
Jim Saxton SF Liquor Licenses
Auto Repair Shop For Sale Orange County
HVAC Business For Sale Central Valley
Facebook
Twitter
Linkedin
Vlogs and Podcasts
Instant Email Alerts On BizBen
BizBen ProBuy Program
New Postings Reports On BizBen Sign Up
Business For Sale California Stats
Advertise On BizBen
BizBen Blogs And Articles


BizBen - Where California Deals Get Done! 888-212-4747
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2020, All Rights Reserved



Clost Login


Please confirm your registration by clicking the link we've sent to .

If you can't see it, please check your junk mail folder.

If you have any problems registering, or need assistance with your new BizBen User Account please phone BizBen Customer Support at 888-212-4747.



First Name:*
Last Name:*
Email Address:*
Confirm Email:*
Create Password:*
Confirm Password:*
Phone:
(   
 


You Are A:
Individual
 
Intermediary
 

Email Address:
Password:
 

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
Should A Buyer Be Allowed To Operate A Business Before The Close Of Escr...
Read More News
What Should I Do If Other Buyers Are Trying To Buy The Same Business As ...
Read More News