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SPECIALIZING IN MERGERS AND ACQUISITIONS, VALUATIONS AND ADVISORY SERVICES

 

It took blood, sweat and tears to build the business you’ve created, but how much is it worth to someone else - for instance, a prospective buyer?

As a seller you need to determine what your business is worth and which valuation method makes sense for your situation. Exodus Business Solutions understands the differences and how to apply them to your specific industrial sector.

Asset valuation method

Add the value of your assets and subtract your liabilities to calculate how much your business would be worth if it were to be sold today. This method does not take into account any future earnings potential or any intangible value, such as the goodwill of the business. Goodwill may or may not be transferred along with new business ownership. Goodwill might include the business location or the owner’s personal reputation, or a special relationship with customers. An underperforming business may not have goodwill, so net asset valuation might accurately reflect its value.

Capitalization of earnings or cash flow

The capitalization rate represents the rate of return a buyer would require on an investment when compared to the market rate for other investments that have comparable risks. A buyer would need to determine the annual earnings trend.

Gross income multipliers

When business expenditures are predictable or in a situation where the buyer intends to drastically cut expenses after a business sale, it can be reasonable to base the business value on a gross revenues multiplier. However, this method, along with using a capitalization rate, doesn’t take into account that businesses within the same industry may have differing profit margins, based on expenses.

Assets and Earnings Valuation

The IRS recommends this method, which bases a company’s value on both assets and historical earnings. After calculating the expected returns from your business assets, then compare this total with your historical earnings. If your annual earnings are higher than the return from your assets, the difference is your excess earnings, which can be divided by a capitalization rate.

Attracting the Right Buyer

There are generally four types of buyers in the marketplace and it’s important to consider their motivations for acquiring your business.

Strategic buyers usually are interested in investing in larger businesses, often with revenues over $20 million, and are often attracted to entering new markets that offer new technologies, proprietary processes or products. Most small businesses don’t meet the criteria to attract these types of buyers who are focused on future earnings and market share.

Industry buyers often lack strategic or synergistic motivations for purchasing a business. Their goals are to locate and secure raw materials or products and negotiate the best possible price to benefit their company or organization.

Financial buyers often are interested in cash flow. They have money to invest, and are looking for a variety of different businesses within varying industries. If they don’t have the experience, they may need significant training and assistance from existing management after the sale, which should be reflected in the purchase price.

Corporate, or sophisticated, buyers are an attractive buyer for most businesses. They often take into account future earnings when assessing a company’s value. This financial information should be well-documented with credible and supportable assumptions to attract these types of buyers.

To receive a fair and accurate market value for your business, enlist the support of an expert in the field, like Exodus Business Solutions By hiring a professional to create a detailed valuation report, it demonstrates to potential buyers that you understand the market and your company’s true worth.

Contact Exodus Business Solutions at (619) 688-0007 or visit www.exodus1.com to get your questions answered and a business valuation started TODAY!

If you’re interested in purchasing an existing business, it can be difficult to determine how much the business is really worth. The process is part-art and part-science, and there are several methods which may be used to arrive at a company’s purchase price.

Asset-based Valuation
One of the most common methods to determine a businesses value is to add up its assets, and subtract its liabilities using the fair market value standard. Assets would include any intellectual property items, key customers’ contracts, and any strategic partnership agreements. Don’t overlook any unrecorded liabilities, which may include any pending legal issues, environmental compliance costs and property and income taxes.

This method does not take into account any future earnings potential or any intangible value, such as the goodwill of the business ... another common asset-based method is capitalized excess earnings, which accounts for both tangible and intangible assets.

Market-based Valuation
Market based valuation methods rely on pricing multiples, which calculate a company’s financial performance, including its revenues and profits, and its potential selling price. This method is commonly employed by buyers and their advisors to calculate a company’s worth. Comparison data - "comparables", based on sales of businesses similar to the business you are interested in buying, is also analyzed. This requires that the data is carefully selected and scrutinized and offers consistent data reporting standards.

Income-based Valuation
The bottom line for most buyers is how much income this business could generate for them. An income valuation approach factors in the risk and rate of return on the investment, based on capitalization and discounting. The capitalization rate represents the anticipated long-term growth rate subtracted from the discount rate. If a company’s earnings vary significantly from year to year, using the discount rate is often the better way to find the business valuation. The discount rate represents the rate of return necessary each year to make this business venture worth the investment. The business purchase price is compared against the annual return of other safer investments.

There are other factors to consider when attempting to determine a businesses’ value, and having a valuation prepared by an expert will lend credibility to your offer.

Determining the value of a business is just the beginning ... let the professionals at Exodus Business Solutions help guide you through the process to make your dream of business ownership a reality!

Being one of the leading firms in our industry, we are best equipped to help you because of our background and years of experience in working with business buyers and businesses of all sizes and types. This includes retail shops, restaurants, franchises, service businesses like distributing and printing, all kinds of manufacturing, laundries and many others Exodus Business Solutions can help you find just the right small business for sale.

Helping Buyers Find the Right Choice

If you need some assistance or advice in reviewing a listing, formulating an offer; negotiating a certain part of the deal, investigating or valuing a particular business, reviewing the financials, or if you simply want an unbiased expert opinion about a particular situation where you’re not positive what strategy to use, we will immediately provide you with our experienced input and assessment.

Your business purchase or sale information will be handled by experts and conducted in a confidential manner. We aim to help these buyers find a business quickly and efficiently.

With this service you’ll have immediate and unlimited access to our team of business buying specialists to help you with situations or challenges you encounter. Our experience extends across a wide variety of industries and company size including manufacturing, distribution, retail, medical (hospital-based, primary care, internal medicine, surgical, other medical specialties & dentistry), financial services-broker/dealers, investment advisors, financial planning, and architectural, engineering, accounting, legal, and other professional firms, hi-tech and non-technical firms.

If you want to go about this the right way, these are the four critical steps you must follow:

• Step 1 – Educate and prepare yourself fully for each stage of the buying process.
• Step 2 – Determine with absolute certainty what type of business is right for you and then focus your search strictly on businesses that make sense.
• Step 3 – Negotiate all of the details to ensure that you put together a deal that makes sense today and down the road.
• Step 4 – Investigate every aspect of the business for sale, the industry, the customers, the financials, the suppliers, the employees and the competition to be sure that you learn everything before you buy!?

Let an Exodus Business Solutions professional help you find the most appropriate business opportunity. Click here to learn more.