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Business Valuation: The Process and Methods (Explained)

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.

Uses

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.

Determining Scope

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.

Document Production

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.

Analysis

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.

Management Discussion

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.

Final Analysis

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

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.

Liquidation 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

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.

8 Important Things to Know (And Ask) When Buying a Restaurant

Nothing comes close to the exciting buzz of opening a new business. However, the average startup costs for a new restaurant business are between $275,000 and $425,000. Buying an existing restaurant could be the perfect option if you want to avoid the turmoil (and startup costs) of starting one from scratch.

Before you jump into your new venture, there are some essential things to consider. Firstly, running a restaurant is not for the faint-hearted! It would help if you also researched the prospective restaurant thoroughly to avoid any nasty legal surprises.

This guide will walk you through what to know (and ask) before buying a restaurant. 

1. Why is the Owner Selling the Restaurant?

Is the owner retiring or starting a new venture? Understanding why the owner is selling their restaurant can provide insight into how the business is performing. Speaking to the owner is also a great way to learn about the brand and story behind the company. 

Working with a professional, knowledgeable business broker can help you gain access to helpful information and uncover the seller’s motivation for selling. A broker can use this information to negotiate a better price for the buyer.

If the owner struggles to generate profits, you may need to rebrand and make drastic changes. If the restaurant was successful, would they be selling it? Remember that you will inherit the good, the bad, and the ugly when you buy a restaurant from the previous owner. 

2. Location, Location, Location

The best way to research a location is to visit as a customer. Check out the area and take notes on the competition. Your findings will give you an idea of whether the site is popular and how other businesses perform in the vicinity of the restaurant.

Learning about the location will also tell you if the rental rates are fair for your property. Crime rates and new developments can also have an impact on the performance of a restaurant.

3. What is the Restaurant’s Reputation?

You can ask the locals what they think of the restaurant as you research the local area. Do they dine in or take out? Do they enjoy the food? 

Lots of restaurants have loyal customers who visit them regularly. Observing the restaurant from a customer’s perspective will allow you to identify whether your prospective restaurant has a loyal following that you will inherit. 

Checking online reviews will give you an idea of the restaurant’s reputation within the local community and beyond. Pay attention to negative feedback and consider how you would address their issues when you take over the restaurant. 

4. The Competition is Fierce

There were 660,936 restaurants in the US as of 2021. Your restaurant must have a unique selling point if you want to succeed in the restaurant industry. It’s a good idea to include a non-compete clause in your contract to prevent the seller from opening up a similar restaurant nearby. 

Establish the restaurant’s unique selling point (USP) by conducting a competitive analysis and tracking industry trends. 

5. Existing Employees

When you buy an existing restaurant, you also take on the staff. Identifying which employees are critical to the restaurant’s success should be part of your due diligence before you complete the purchase. Some employees may wish to terminate their employment if a new owner takes over the restaurant. 

Your new employees are a direct connection between you and your new customer base. They can teach you everything there is to know about your new business and how to help it succeed. Taking their opinions on board will be crucial to your future business strategy.

6. Check the Licenses and Permits

You may need to apply for state-specific licenses and permits to run your restaurant. Your restaurant must have a liquor license if you sell alcoholic beverages. It is also worth checking if any violations or outstanding debts could jeopardize the restaurant’s success.

Does your restaurant use a dumpster for garbage disposal? You may need a dumpster placement permit. Licenses and permits vary depending on your location, so it is best to check with your local authority before you sign the contract.

Ask the seller about licenses and permits so that you are aware of which ones you need. You can check your local government website to view inspection results and any health code violations against the restaurant before you buy it. 

7. Marketing is Crucial

Keeping customers interested in your new restaurant is vital for success. What is the current owner doing to advertise the restaurant? Consider your marketing strategy before you buy so you can figure out how you would cater to the demographic. 

Take a look at the restaurant’s social media and website before you commit to the purchase. Do they have a solid online following with plenty of positive reviews? A paper-based marketing strategy may work better if the customer base is an older crowd. 

8. Buying a Restaurant is an Adventure

Buying a restaurant is hard work. However, the rewards you’ll receive along the way will make it worthwhile. Running a restaurant is the perfect way to introduce people to your recipes and culture alongside great music and delicious beverages. 

Owning a restaurant will also give you more opportunities to give back to your community. You can donate surplus food to charities and homeless shelters or sponsor a worthy cause. 

Get Support With Buying a Restaurant

Buying a restaurant is the perfect way to enter the business world without taking substantial financial steps. An existing restaurant with an established customer base, trained staff, and permits will allow you to take over where the previous owner left off. It would be best to research whether the restaurant for sale is a risk or a path to success. 

Are you ready to buy a restaurant? Take the first step and book a free consultation with Fusion to make your dream a reality.

Quickly Sell Your Business in St Charles County: A Complete Guide

Are you looking to sell your business in St Charles County? Whether you’re retiring, moving on to something new, or just ready for a change, selling your business is a big decision.

With over 8,647 businesses sold in the U.S. in 2021,  there’s a lot of competition out there. But where do you start? How can you make sure your business stands out and sells quickly?

How do you get the best price for your hard work? And how can you be sure the transition goes smoothly? Here are a few tips to help you sell your business quickly in St Charles County:

Prepare Your Business for Sale

If you’re thinking about selling your business, there are several important things you’ll need to do to prepare. First, you’ll need to get your financials in order. This means gathering all the necessary documentation, such as income tax returns and balance sheets.

You also need to put together a sales deck or presentation that outlines your business’s key statistics, such as revenue and profitability.

You’ll also want to start thinking about what you want from the sale. What’s your ideal outcome? What are you willing to compromise on? By getting clear on your goals, you can start to formulate your negotiation strategy.

Getting all your ducks in a row will help you sell your business quickly and at a higher price.

Calculate the Value of Your Business

When you’re ready to sell your business, one of the first questions you’ll need to answer is, “how much is it worth?” Though there’s no single formula for calculating the value of a business, there are a few key factors that buyers will take into account.

One important consideration is the size of the business — larger businesses tend to sell for more than smaller ones. Another is profitability — businesses that are profitable, or have the potential for high growth, will usually command a higher price.

Finally, buyers will also look at the type of business and the industry in which it operates. Businesses in high-demand industries, such as technology or healthcare, will typically be valued higher than those in more traditional sectors. 

By taking all these factors into account, you can get a better sense of what your business is worth. This helps you price it well for potential buyers.

Hire a Business Broker

Once you’ve prepared your business for sale, it’s time to start advertising it around. The best way to do this is to hire a business broker.

A business broker is a professional who will help you navigate the process of selling your business. They will help you find buyers, negotiate deals, and close the sale. 

Working with St Charles business brokers is the best way to ensure that you get the best possible price for your business. They will also help you avoid common mistakes sellers make when selling their businesses in your industry.

Find the Right Buyer

When you’re ready to sell your business, it’s important to find the right buyer. The right buyer will be someone who is interested in your specific industry. They should also have the resources to make a fair offer for your business.

The right buyer should be willing to sign a non-compete agreement to protect your interests after the sale.

To find the right buyer, you can start by asking people you know in your industry if they know of anyone who might be interested in buying your business. You can also contact a business broker or an investment bank specializing in assisting with business sales.

Once you have a few potential buyers in mind, you can then begin negotiating the terms of the sale. With careful planning and preparation, you can ensure that you find the right buyer for your business and get the best possible price for your sale.

Be Honest With Potential Buyers

Honesty is always the best policy when selling your St Charles county business. It’s often tempting to try and make your business look more appealing than it really is, but this will only come back to bite you later on.

Be upfront about any potential problems or issues with the business and be prepared to answer any questions that a potential buyer may have.

If you’re not honest about the state of your business, the sale will likely fall through, and you’ll end up losing out in the end.

So, be honest with potential buyers from the start, and you’ll stand a much better chance of making a successful sale.

Know the Right Moment to Sell

Many business owners dream of the day when they can sell their company for a handsome profit. However, timing is everything.

Picking the right moment to sell can mean the difference between getting a good price and having your business languish on the market for months. If you wait too long, your company may lose value as it becomes outdated or less competitive.

On the other hand, if you sell too soon, you may miss out on important growth opportunities.

The best time to sell your business is usually when it is performing well and has potential for continued growth. If your business is struggling, you may be able to turn things around with a strategic plan and some hard work.

Pre-Qualify Buyers

It is important to pre-qualify buyers before putting your business on the market. You don’t want to waste time dealing with tire kickers or people who can’t afford to buy your business.

The best way to pre-qualify buyers is to work with a reputable business broker in St Charles County. A good broker will have a database of qualified buyers and will know how to market your business to them.

Sell Your Business in St Charles County Today

Are you ready to sell your business in St Charles County? Whether you’re looking to retire, move on to a new venture, or simply want to cash out, ensure you follow our guide above.

Contact us today if you need any help or advice when selling your business. Our team of experts would be happy to help you through the process and get you the best price for your business. Give us a call today, and let’s get started.

Sell Your Business in St Louis With These 6 Tips

It takes between 30 and 90 days to sell a business in St. Louis. How long your business takes to sell will depend on factors like the business type, the business structure, and the location.

If you want to sell your business in St. Louis, it’s vital to know the steps to follow to ensure you find a buyer quickly. You need to keep in mind that selling your business is a process that might take some time.

Are you looking to learn more about what it will take to sell your business in St. Louis? Keep reading to learn the six steps you need to follow.

1. Determine Why You Want to Sell

The first step in selling your business is understanding why you want to sell. This knowledge will help you determine the future of your business and set a timeline for its sale.

Some business owners sell their businesses because they’re preparing to retire. Others might need to sell due to personal or health reasons. Some sell because they want to move on to something else.

Whatever your reason for selling, understanding your motivation will help you move forward with the sale. It will also make it easier to communicate your reasons to potential buyers.

2. Get Your Business Valued

The next step is to get your business valued. This will give you an idea of how much your business is worth and help you set a realistic selling price.

There are a few ways to value your business. One is to calculate the business’s net worth, which is the value of its assets minus its liabilities. Another way is to look at the business’s revenue and profit.

You can also hire a business broker to value your business. This is a good option if you’re not sure how to value your business or if you want a professional opinion.

The broker will determine the most accurate value for your business because they can access huge databases and use them for reference.

3. Prepare Your Financial Records

One of the things potential buyers will want to see is your business’s financial records. They’ll want to know things like your revenue, expenses, and profit margins.

So, before you put your business on the market, make sure you have your financial records in order. The records will give buyers confidence in your business and make the sale process smoother.

You should also have a business plan ready to show buyers. The plan will give them an idea of your business’s future and how they can grow it. If you don’t have all your financial records in order, now is the time to get them in order.

4. Find a Business Broker

You’ll sell your business faster if you rely on the expertise of business brokers. If you decide to handle the heavy lifting and ignore these professionals, there’s a high risk that your business won’t sell, or it won’t fetch a good profit.

A business broker will understand how to manage the sale process and ensure you get a higher profit. They’ll handle everything from determining your business’s value to preparing presentations for potential buyers. A broker will also bring a subjective perspective to the sale process because they’ve no emotional attachment to your business.

When choosing a broker, it’s crucial to pick someone who has experience selling businesses in your industry. This will ensure they have the knowledge and connections to help you sell your business. It’s also essential to choose a broker you’re comfortable working with.

5. Market Your Business to Find a Buyer

Once you’ve chosen a broker, it’s time to start marketing your business for sale. There are a few ways to do this.

Your broker will likely list your business on their website and other business-for-sale websites. They might also run ads in business publications and reach out to their network of buyers.

You can also market your business yourself. You can start by telling the people you know that you’re selling and running ads on your social media pages.

The key is to get the word out that your business is for sale. The more people know, the better your chances of finding a buyer.

6. Negotiate and Close the Deal

After finding a buyer, you should be prepared to negotiate a sale price. This can be a complex process, so it’s vital to have your business broker help you with the process.

Your broker will likely present the buyer’s offer to you and help you negotiate a counteroffer. They’ll also help you reach an agreement on terms such as the purchase price, payment schedule, and closing date.

Remember that you’re in control of the negotiation process. Don’t be afraid to ask for what you want and hold out for a fair price.

Once you’ve reached an agreement with the buyer, it’s time to close the deal. This is the time you’ll make a sale, and the ownership of the business will change hands.

The closing process can be complex, so it’s crucial to have an attorney help you with this. They can ensure the deal is structured correctly and that all the necessary paperwork is in order. After the deal is closed, you’ll receive the purchase price, and the buyer will officially own the business.

Sell Your Business in St. Louis Faster

Are you planning to sell your business in St. Louis? You’ll find the right buyer faster and increase your chances of success by following the above six steps.

If you’re serious about selling your business, you’ve probably searched the web for how to “sell my business” or “sell your business in St. Louis.” Look no further than Fusion Advantage. Our business brokers will help your small or medium-sized business find the best buyers in the St. Louis Area.

Contact us today to learn more about how we can help you with the selling process.

The Process for Selling a Business: How to Prepare

Owning a business is a fundamental part of the American Dream. Becoming a business owner lets you take control of your work life and sell products and services you believe in. 

But, owning a business is also a lot of work. You may have reached the point where you can’t handle this work anymore. Or, maybe you’ve made enough money that you don’t need your business income anymore.

In either case, you may consider selling your business. Selling a business can relieve you of many responsibilities and free up your lifestyle. 

Yet, selling a small business is also a process that requires lots of work. You may not even know how to sell a business yet. 

Luckily, you don’t have to go through this alone! Instead, we’ll provide you with this “selling a business checklist” in our guide below. Let’s jump right into it, shall we?

How to Sell a Business: Get a Valuation

The first step in selling a business is to determine its value. So, to begin, find a company that can provide a professional valuation to assess your business’ worth.

This valuation provides you with a means for gauging offers from prospective buyers. This way, you can get an idea of what to expect to net from your sale. 

Valuations provide other information as well, such as:

• Business market position
• Financial situation
• Strengths and weaknesses 

Several sources can provide a business valuation. You can go to your local accounting firm to receive this information or find specialized brokers. Remember that the valuation company needs the most current national data trends for your industry.

This knowledge ensures this company provides an accurate valuation of your business. Finally, it also helps if they have experience selling businesses like yours. 

Prepare Your Books When Selling a Business

Once you get a business valuation, start preparing your financial records. Most buyers for businesses want three years’ worth of financial information. Sometimes, they may want more than this. 

So, gather your records and ensure they’re as clear as possible. It’s best to have your statements reviewed or prepared by an accountant, too. An outside professional will usually organize your data in a more accessible way than internally generated methods. 

Make sure you gather your tax returns, too. Sometimes, these documents alone suffice for your prospective buyer. 

Also, remember that some expenses may not be representative of your business’s profitability. You may have infrequent expenses from the last three years that the buyer should exclude when analyzing your cash flow. 

For example, your business may have moved to another location. If so, you may have moving expenses that wouldn’t recur in other years. 

But, your business may have nonoperational expenses each year, too. For example, your business may pay for your personal cell phone or automobile lease. Business owners must provide supporting documentation in these cases.

Talk With Your Financial Advisor

In many cases, selling a business brings tax concerns for business owners. Because of this, you may want to consult your tax advisor to plan for your future.

Your tax consultant can help you understand your personal and corporate tax situation in greater detail. From there, you can determine your options when structuring your business bill of sale. 

Organize Your Legal Documents

Prospective buyers won’t just want your financial information. They’ll also want to see your legal documents, including:

• Incorporation papers
• Permits
• Licensing agreements
• Leases
• Contracts with customers and vendors

These documents help buyers verify your business dealings and ensure they’re legit. So, make sure you gather them together. Also, check that the documents are current and chronologically ordered. 

Determine Your Managerial Succession

Many small business owners take a hands-on approach to running their business. They play a significant part in their day-to-day operations and oversee their progress. 

If that describes you, then consider who can replace you. All the paperwork in the world can’t tell you everything about your operation. Personal dynamics and operational methods are often unknown to new buyers. 

So, it’s imperative to find somebody that the new owner can turn to for help after you leave. Who fits that description? Who knows your operation better than anybody else and has the judgment to help oversee it? 

Make a Good Impression on Buyers

At some point, buyers will visit your shop to see how it runs. When they get there, what will they see?

Will it be an orderly business with streamlined processes? Or, will they see a business in chaos? 

Buyers look for a company that runs orderly and well. These operations usually indicate that the shop has a skilled management team overseeing the business. As such, buyers feel more secure in their investments. 

Know Why You Want to Sell

Buyers look for a company that runs orderly and well. These operations usually indicate that the shop has a skilled management team overseeing the business. As such, buyers feel more secure in their investments. 

This caution usually leads to buyers asking why you want to sell. After all, why would you give up a well-run and profitable business? 

So, be prepared to give an answer to that question. Make sure it’s well-articulated and easy for buyers to understand.

Build Your Legal Team

Finally, it’s best for businesses to assemble a legal team they can trust. Look for lawyers and accountants with expertise in mergers and business acquisitions. These people can help you draw a solid contract and business bill of sale. 

Also, consider using a business broker or investment banker to represent your business. These professionals can help you through the business selling process from start to finish.

Find a Business Broker To Help You!

Selling a business alone can be challenging. There’s a lot of organization you have to do, and it may be tricky to know how best to do it. 

That’s why a business broker can be a tremendous asset to you. Fusion Business Services provides an integrated process to help you understand every aspect of your sale. 

We work with you through every step of this progress to ensure you get the best deal possible. If that’s what you need, don’t hesitate! Contact us today to learn more about what we can do for you.