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The Importance of a Valuation when Selling a
Business
A
recent survey by George S. May International revealed that 58% of
respondents had never had a formal business valuation yet 29% were
considering a sale in the next one to four years. I am
continually perplexed by the number of business owners who do not
regard this step as a critical factor in selling their businesses,
especially since the business is probably their largest single
asset.
I commonly hear from owners that they do not want to spend the money,
their accountant will tell them the value, the business broker should
be able to provide a market price, or that they know the price which
was based solely on gut feel. After years of running a
successful operation this seems like such a reckless way to handle
the final stage of business ownership.
While I believe a valuation is imperative to a successful transaction
not all valuations are created equal. There can be wide
disparities in the content of a valuation report, the costs, the
credentials of the appraiser and the usefulness in securing a
business sale. For example, Gulf Coast Financial is one of the
leading independent appraisers in the country. We have found
their reports to be comprehensive and thorough while being very cost
efficient. They have accreditations from all the major governing
bodies for professional appraisers.
Below are some of the key things to consider when
contemplating a valuation.
1- Real value. The key to a
successful listing is having the business priced appropriately.
If the value does not meet your expectations the report should give
you a road map of how to increase the value. Understanding the
key value drivers can help you run your business more effectively.
2- Unbiased opinion. Prospective
buyers are more likely to engage in negotiating knowing that the
asking process has been set from someone other than the seller,
seller's CPA or the broker.
3- Time. A properly valued
business should spend less time on the market, attract more buyers
and result in a better return for the seller.
4- Brokers are not appraisers.
Contrary to what seller's believe, brokers are typically not
certified appraisers. While a broker's valuable market
experience can provide guidance in what the market will bare and
generating multiple buyers, they are not equipped to establish a
value.
5- Fees vs. Returns. It is so
easy to get caught up in the cost of a valuation and lose sight of
the bigger goals which is maximizing the return on the
business. A professionally prepared valuation is one of the
most important tools a broker and seller will have in securing a
successful outcome.
A valuation for purposes of selling a business should not be
exorbitantly priced. A typical small business valuation should
range from $2500 to $8000 depending on the size and complexity of the
business. Most professional advisors would agree that this is a
small price to pay to know the true value of your largest
asset.
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