Most business owners don’t give a second thought to the idea of going to the doctor for an annual physical. So why do they not give the same level of care and consideration to their company? The fact of the matter is that many executives literally go decades without giving their companies a “physical.” They only stop to truly evaluate their business when required by regulations or another matter forcing them to do so.
Consider an Annual Valuation
Let’s take a look at some of the reasons why business owners should get an annual valuation. The first issue concerns the curveballs life often throws at us. At any given time, you and your business could be unexpectedly hit with everything from partnership issues or life changes like a divorce to changes in bank relationships. When you keep careful track of the value of your business, you will know in advance how potential changes would affect you. Perhaps even more importantly, you will gain an understanding of the health of your business.
Monitor Business Growth
It’s critical to be aware of how your business compares from one year to the next. Are values definitely increasing? If not, you would surely want to know immediately and start making necessary adjustments. If a major problem were to surface, you would want to know about it right away so that you can take action. Otherwise, you might just let the years pass you by while this issue goes unchecked. This is the kind of data you will gain when you commit to regular valuations.
Be Prepared for the Unknown
You might feel far from ready to sell. However, you should always be ready if the situation does present itself. What if an amazing opportunity showed up on your doorstep? On the flip side of the coin, what if a life issue like illness put you in a situation where a sale was suddenly necessary? If you are not ready both mentally and with the necessary paperwork for your business prepared, you might miss out on a legitimate opportunity.
Statistics gathered from a prominent accounting firm showed that 65% of business owners do not know what their company is worth. However, at the same time 75% of the net worth of these business owners is tied up in their business. The problem with these statistics is quickly evident. Be sure to take as good of care of your business as you would take of yourself.
The post Take Inventory of Your Company appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
There are over 33 million small businesses in the United States. If you’ve ever dreamed of being a small business owner, why not join them?
You don’t have to start your own business to be a business owner. Buying a business that already exists is a valid (and sometimes easier) option. You’ll already have a clear framework to work with and a preexisting customer base.
But how do you buy a business? We’re here to talk about it. Read on to learn all about how to buy a business.
1. Do Your Research
When you’re making the decision to buy a business, it’s important that you do your research ahead of time. Buying a small business is no small deal. This is a major investment that will lead to a significant life change.
You want to make sure you’re buying a business in an area in which it can thrive. Make sure the niche isn’t oversaturated and that the business has a relatively high potential for success.
If this is your first time buying or owning a business, you should also take time to understand what that entails. Owning a business isn’t easy, and while buying a preexisting business comes with its benefits, you still need to understand the basics.
2. Determine Your Budget
How much money are you able to spend on this business?
Most businesses are financed. You’ll likely be paying for part of the business in cash and the rest through a loan. Obtaining financing can be challenging, so it’s something you want to think about as early as possible.
The current business owner may offer seller financing, which may be easier than getting a loan from the bank, so keep this in mind when you’re finding a business to purchase.
Even if you get a loan, you don’t want to financially overextend yourself. Determine how much money you’re able to put into the business, and don’t forget that the cost of the business itself is not the only cost you have to think about.
You’ll have to consider the costs associated with running a business.
3. Find a Business to Buy
Now it’s time to find the right business. When you’re choosing a business, look for things like:
- An industry you understand
- Positive cashflow
- A decent reputation
- A long-term growth plan
- Something you think you’d enjoy
Not all businesses will be a good fit for you. This is a long-term commitment, so you want to find something perfect. Don’t be afraid to shop around.
You can work with online business brokers to find your new business. It can also be helpful to network with other local business owners who may have some leads or insider information about the businesses that are currently for sale.
4. Value the Business
So you’ve found a business that seems right. Now it’s time to value it. Business owners do not always accurately value their businesses, so to make sure you’re making the right choice, you’re going to have to do that on your own.
You can try to value the business on your own, but if this is your first time buying a business, it’s best to hire a professional. This can be expensive, but the cost is more than worthwhile so you know you’re not overpaying or buying a business that’s doomed to fail.
Now it’s the negotiation phase. Business owners already have prices in mind, but those prices may go up or down depending on the circumstances.
If other people want to buy that business, you may end up paying over the asking price. If you’re the only potential buyer and you think the business is overvalued, you may be able to get a lower price.
Make a written or verbal offer on the business. As long as the offer is close to what the business owner wants, they’ll respond.
When you’re done negotiating the purchase price and terms of the agreement, nothing will be official. You’ll be able to return to the negotiation if necessary after you do your due diligence.
6. Write a Letter of Intent
Your letter of intent is just a written notice that you plan on purchasing the business. Write the tentative purchase price, the terms of the agreement, and your intent to buy.
The letter of intent gives you the sole right to purchase the business for about 90 days, so you have that long to confirm without losing it.
7. Do Your Due Diligence
Once you submit the letter of intent, you’ll have access to more information about the business. You’ll get financial records, organizational documents, legal information, contract information, and more.
You want to take your time looking through all of this information before making your final decision. Something you find could lower the value of the property or turn it into a bad purchase altogether.
8. Complete the Transaction
If all is well after doing your due diligence, you’ve successfully obtained money for the business, and you agree with the terms, you can now close the transaction.
You’ll draft a purchase agreement and set a closing date. It’s helpful to have a lawyer help you with this process to make sure everything is fair.
Depending on the situation, you may need to apply for new business licenses before you’re able to start running the business on your own. It’s possible for the old licenses to carry over temporarily, but this isn’t always the case.
Congratulations on Buying a Business
Buying a business can be stressful, but once the process is over, you’ll have a whole new life path ahead of you. You’re now a business owner! That’s something to be excited about.
The process won’t be quick or easy, but it will be worthwhile.
Are you getting ready to buy a business in the St. Louis area? We want to help you. Contact us to learn more about buying (or selling) a business today.Read More
There are roughly 31.7 billion small businesses in the United States. While being an entrepreneur is great, running a business is not easy. It takes a lot of hard work and dedication. Most people go through ups and downs in entrepreneurship before they get it right.
Thankfully, there are solutions to these types of problems, like selling your business. With that said, if you want to learn how to sell your business, check out the tips below.
1. Determine the Value of Your Business
There are a number of factors to consider when selling your business. The first is to determine the value of your business. This is done by considering the value of your assets, such as property, equipment, and inventory.
You will also need to account for any outstanding debts and liabilities. Once you have a clear understanding of your business’s value, you can begin to sell it to potential buyers. It’s important to remember that the value of your business is not static; it can change over time based on a variety of factors.
As such, it is important to periodically review your business’s value and make adjustments accordingly. By doing so, you will ensure that you always receive fair value for your business.
2. Create a Strong Online Presence for Your Business
Having a strong online presence for your business is essential if you want to sell your products or services online. There are a number of ways to create a strong online presence, but one of the most important is to choose the right domain name. A domain name is the address of your website, and it should be easy to remember and relevant to your business.
Once you have chosen a domain name, you can set up a website and start promoting your products or services. In addition to creating a website, you can also create social media accounts and post regular updates about your business.
By taking these steps, you will ensure that potential customers can easily find your business online and learn more about what you have to offer.
3. Use Social Media to Reach Potential Buyers
With over three billion active social media users around the world, there’s no doubt that platforms like Facebook, Twitter, and Instagram offer a huge potential market for businesses. But with so many options out there, how can you make sure that your business is reaching its potential buyers?
First, it’s important to understand which platform or platforms your target audience is using most frequently. Then, you need to create engaging content that speaks to their needs and interests. Finally, you need to be strategic about when and how often you post in order to reach the widest possible audience.
4. Make Your Business Stand Out From the Competition
If you want your business to succeed, you need to make it stand out from the competition. There are a number of ways to do this, but it all comes down to knowing your target market and understanding what they want.
Once you’ve identified your niche, you can start to tailor your products and services to meet their needs. You should also focus on creating a strong brand that is easily recognizable and memorable. This can be achieved through creative marketing and advertising campaigns that make use of effective visuals and catchy slogans.
Lastly, always strive to provide excellent customer service that will leave a lasting impression.
5. Prepare Your Business for Sale
When you’re ready to sell your business, there are a few key things you can do to prepare it for sale and maximize its value. Start by making sure your financials are in order. Buyers will want to see detailed records of your revenue, expenses, and profits.
Next, put together a solid marketing strategy. This will help you attract interested buyers and demonstrate the potential of your business. Finally, get your legal affairs in order.
Make sure all your contracts and licenses are up-to-date, and that there are no outstanding issues that could complicate the sale. By taking these steps, you can make sure your business is in its best shape possible when it’s time to sell.
6. Negotiate the Sale Price and Other Terms
When it comes to business, there are a lot of important factors to consider. One of the most important is negotiating the sale price. This is especially true if you’re selling a business or another high-value item.
However, even if you’re not selling something expensive, it’s still important to get the best possible price for your product or service. There are several things you can do to increase your chances of success when negotiating the sale price.
First, do your research and know what the going rate is for what you’re selling. This will give you a baseline to work from. Second, be prepared to compromise. Remember, the goal is to reach an agreement that works for both parties. Third, don’t be afraid to walk away if the other party isn’t willing to meet your demands.
With these tips in mind, you’ll be well on your way to negotiating the best possible sale price.
Business Consulting: Understanding How to Sell Your Business
If you want to sell your business, we can help. At Fusion, our consultants can get you on the right track. We’ll assist you with everything you need to get started and show you how to move forward.
If you’d like to learn more about how we can assist you, call us at 314-639-0500 or contact us online. We look forward to working with you!
There are more than 33 million small and medium-sized businesses scattered across the US. Many of those businesses are concentrated in urban areas, such as the metropolitan St. Louis area. The simple population density concentrates people with entrepreneurial leanings into a small area.
Despite all of the hard work and long hours, often 50 hours a week or more, there does come a time when most business owners are ready to pack it in. If they want to sell the business, rather than simply close, they’ll need a business valuation.
Not clear on the nature or use of a company valuation? Keep reading and we’ll cover the essentials of the valuation process and methods.
What Is a Business Valuation?
In simple terms, a business valuation aims at creating a realistic assessment of the business’s economic value. Some business valuations assess the value of the entire business, while others only look at evaluating part of the business.
For example, let’s say that you run a medium-sized manufacturing concern. You have two production plants that serve two different kinds of clients.
Let’s say that you’re the sole owner and want to retire. If you don’t have someone in mind to take over the business, you may decide to sell it.
If someone comes along and only wants to buy one of the production plants, you’d do a partial business valuation. If someone wanted the whole business, you’d do a full valuation.
The most recognizable use of business valuations is for the purpose of selling the business. It’s not the only potential use for a valuation.
In some cases, potential investors might want a valuation before deciding if or how much they’ll invest. Business valuations happen sometimes during divorces to ascertain the full scope of the couple’s assets.
You might also want a valuation for tax planning, estate planning, or even for mediation with stockholders.
What Is the Business Valuation Process?
The exact steps taken in a business valuation process depend in part on the particular valuation method selected. We’ll cover the main methods below. What follows is a general sequence of events that occur in most business valuations.
The individual or company providing the valuation will look for clarity about the scope of the valuation. For example, are they determining a value for the entire business, part of the business, or a specific number of stock shares?
As part of this step, they’ll also want a specific date for setting the value, since the total value can fluctuate over time. In many cases, they’ll simply set the date for the business’s most recent tax filing.
You must clarify what the report is for. If you need it for estate planning, rather than litigation, the depth of the valuation may vary. They’ll also need to know what kind of report you need, as reports can range from basic summary reports to in-depth reports.
The valuation service will likely ask you for a lot of documents. The exact documents will vary from business to business and industry to industry.
For a retail business that depends on a high volume of transactions, the company may want fairly in-depth sales reports. For a business that makes approximately 6 custom yachts per year, a profit and loss statement might suffice.
In most cases, the company will provide a specific list of documents it wants.
The valuation service will then analyze the information. They’ll typically compare it with industry information, since this can shed light on whether business profitability is average, above average, or below average.
Depending on the analysis results, the valuation company may also come up with a set of follow-up questions for the owner or management team. This kind of management discussion typically focuses on clarifying information or understanding factors that the documents may not make clear.
After that discussion, the valuation company will use one of the methods below to develop a final valuation. They’ll issue a report that the business owner can then provide to potential buyers.
This process can move quickly or slowly, depending on the size, complexity, and industry of the business.
Business Valuation Methods
There are several business valuation methods that a valuation company might employ to value a business. Let’s take a quick look at the most common approaches.
Book value is one of the simplest approaches. It essentially adds up all of the assets on the business’s balance sheet. Then, it subtracts all of the liabilities on the balance sheet from the total asset value.
The liquidation value assumes that you own a distressed business. This approach adds up the value of your assets and subtracts a percentage from that value for a final value. The valuation company must determine the exact percentage it will subtract.
Market value can take a couple of forms. A basic market value approach simply multiplies the number of shares in a company by the going sale price of that stock.
A more complex version compares similar companies to arrive at a relative value for the business. This approach can provide a better real-world picture, but it is also subject to market errors like as an industry bubble overvaluing businesses.
Discounted Cash Flow
The discounted cash flow approach assesses the immediate value of predicted future profits. In this approach, the size of the discount applied to that value reflects the risk that the business will underperform.
Each approach has benefits and problems. Ideally, you should get multiple valuations based on different valuation methods for a clearer picture.
Business Valuation and You
Business valuation is a tool that you can use to determine a realistic asking price for a business you want to sell. There are several possible valuation methods that you can use, but multiple valuations give you the most clarity about your business’s ultimate value.
Fortunately, while the methods of business valuation can prove complex, you can hire someone else to take on that headache.
Fusion Business Services helps St. Louis-area business owners value and sell their businesses. For more information or to schedule a consultation, contact Fusion Business Services today.Read More
When you’re in the process of buying a business, it’s important to stay logical. No matter how good the opportunity may seem at first glance, be sure to carefully evaluate the business in a step-by-step manner. Regardless of how excited you might be about the prospect of ownership; you’ll want to have your guard up when you go through the due diligence process. Let’s take a look at 5 of the most important questions to ask yourself before signing on the dotted line.
1. Do you have a personal interest in the business?
Needless to say, owners have made businesses successfully thrive even if they lack a personal interest in what is being sold. However, you might want to stop and ask yourself if you do indeed have a passion for the goods or services offered by the business in question. If you are uninterested, you may find it harder to make a long-time commitment.
2. What is the business plan like?
It’s helpful to see the goals of the current owner and evaluate which of these goals have actually been achieved. If there is no business plan, this should give you pause.
3. How does the business perform?
Take a look at the business’s overall performance. Do you get the feeling that the business requires many hours of intensive work from the owner? If so, remember that this owner putting in all of those hours could be you in the near future. Is there a reliable manager to oversee operations in your absence?
4. What are the demographics?
Who are the key customers? Are there several main accounts that the business depends upon or a wide variety of customers and clients? Needless to say, if the business relies on just a few key accounts, this could be problematic if things were to change. Further, do you see a clear way to add new customers in the future? Before you buy a business, you’ll want to feel confident that you can help it thrive and grow.
5. Are you satisfied with the financials?
Once you’ve successfully signed the necessary written agreements, you’ll want to take a deep dive into the business’s financials. Make sure that everything has been provided including:
- Tax returns
- Profit and loss statements
- Balance sheets
- Bank statements
The bottom line is that you will want to be careful when purchasing a business and watch for any red flags. The last thing you want is to make a hasty decision that you regret later on.
The post 5 Elements for Buyers to Investigate appeared first on Deal Studio – Automate, accelerate and elevate your deal making.