Adjust Net Income For Determine Cash Flow Is Correct Selling for Maximum Value

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Selling for Maximum Value

Simply put, “valuation” is what a buyer is willing to pay for your business. In practice, however, evaluation is simple and often as much an art as a science. Here’s a little bit of “Evaluation 101”:

Assessment is not formulaic

o The initial step in selling a business involves a complete and accurate business assessment that includes a valuation analysis.

o Common methods of valuing a business include public market comparative analysis, identifying prior M&A transactions, discounted cash flow analysis, book or asset-based valuation methods, and applying multiples to revenue, EBITDA, or net income.

o Many formulas and “rules of thumb” have been developed to arrive at a “ballpark” estimate of value, but it takes an experienced expert to look beyond the formulas alone and determine the true measure of value.

Textbook formulas and “rules of thumb” alone are not sufficient methods for evaluating a business

Don’t leave money on the table by ignoring the intangible value of the business

o At a minimum, the buyer must be willing to pay the underlying intrinsic value of the business.

o In many cases, however, sellers forgo the opportunity to receive fair compensation for the intangible value of the business. This is due to the inability of inexperienced salespeople to properly validate, support and quantify the intangible value of the business.

o Using the right valuation methods and techniques can help sellers maximize value. It is also important to rewrite historical financial statements to show how the purchase of the business will affect the buyer’s financial results.

Premium buyers analyze the future potential of an acquisition to determine value.

The intangible value of a business is a significant amount for a premium buyer.

How can business value be increased?

o Prepare concise, detailed and comprehensive information related to the business.

o Apply appropriate market analysis and research to support financial forecasts.

o Define the intangible and future benefits of the business and potential synergies of the pro forma combination.

o Identify and approach suitable buyers.

o Conduct a structured, competitive sales process.

o Draft and negotiate contracts on vendor terms.

By using good market research, contacting the right buyers, running a competitive process, and effectively structuring the transaction, a business owner can maximize value when selling a company.

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