Although this is a common enough question, it has no simple answer. It may be tempting to believe that selling a company should be very little different from selling a home. If only that were true! In practice, the two transactions are vastly different in most respects. Furthermore, those differences are perhaps most evident when one compares the factors that determine their valuation. Estate agents refer to recently documented sales when valuing a domestic property. However, for anyone asking how much is my business worth, there is no comparable data for comparison purposes.
An accountant will tell you that your company’s value is the difference between its saleable assets and its current liabilities. However, while a bank manager may see the figure as a measure of the company’s creditworthiness, it does not indicate its potential value to an interested buyer. Others may base the valuation on annual profits before or after taxation. While this is a measure of performance, it does not reflect how much your business is worth to the right buyer.
Unlike buying a new car or washing machine, purchasing a company is an investment. In some cases, the purchaser is just seeking an opportunity to quit working for a boss and gain some independence. However, if you are selling a large and well-established, profitable business, you will need a buyer with rather more to spend. Your most lucrative target market will be those who already own a successful company and are looking to expand, diversify or strengthen their supply chain. Their offers will not be based on balance sheets but on how much your business is worth as an instrument to achieve their companies’ goals.
However, the terms of any deal struck must meet all of your needs and not just an acceptable purchase price. Perhaps your goal is not to sell but to secure an investor to finance your expansion plans or provide you with an entrée into new markets. Alternatively, you may wish to raise some cash for your eventual retirement but would still like to retain a less demanding role in your company’s day-to-day operation. Rather than selling, therefore, you will be seeking a merger. Merging need not affect how much your business is worth and might also be quicker than looking for an outright buyer.
If you have never sold a business before, beware. It’s seldom a quick process and is markedly more involved than selling a house. You won’t have much luck advertising in the local newspaper. Even if, by some miracle, you found a buyer, you would have no chance of achieving your asking price. In practice, the most effective way to secure a favourable deal based on how much your business is worth to an interested buyer or investor is to seek the services of a mergers and acquisitions (M&A) advisor. Deal Leaders International is a sell-side M&A company with exceptional marketing and negotiating expertise and an extensive list of companies with a potential interest in your company. DLI advisors have all the experience and skills necessary to plan your exit strategy and secure a deal that will truly reflect how much your business is worth. Furthermore, the company has a record of successes to support this claim.