Thinking of Selling?
Is your business worth what you think?
According to recent research, 49% of business owners nominate a "trade sale" of their business as their preferred and most likely succession planning exit option. With record numbers of businesses selling, business owners are often disappointed when the offer they receive, via a trade sale, is well below their expectations.
Valuing a business is usually the first step in developing an effective plan for sale. It is also either themselves or in collaboration with their adviser that determine and identify:
• A relatively accurate and current business value
• The value needed at the expected time of sale
• Areas for improvement to achieve the desired sale price
The technology goes much further than just valuing a business; it allows business owners to change their business' key value drive inputs and instantaneously see how an improvement in these drivers affects the business' value. This type of scenario analysis can provide a high degree of comfort to business owners, as it identifies the areas in the business that can be improved, to bridge the usual gap between current business value and the owner's sale price expectation.
Case Study
Andrea owns a successful retail healthcare business. She is thinking of selling her
business and expects to receive $1,500,000. Her business agent used the Bstar online
valuation tool to value the business and determined a value of $1,050,000. Andrea’s agent
then provided an online valuation demonstration on how the impact of improving stock
turnover rates, expanding high value product lines and offering incentives to staff would help Andrea achieve her sale price expectation well before her planned sale date. Andrea now has a clear plan on what she needs to do to achieve her desired sale price.
Not only are the objective profit and cash flow figures important but so are the subjective or non-financial value drivers. The subjective value drivers include industry risk, growth, benchmarks, business risks, competition, customer and market demand, staff and owner’s level of involvement in the business and succession and estate planning matters. Some specific examples of subjective, non-financial value drivers include:
Is your business reliant on you?
Degree of customer loyalty?
How would a 10% increase in your prices affect the demand for your
products/services?
Staff retention history?
Supply disruption?
Do competitors have barriers to entry to the industry?
Succession/estate planning in your own and your customer’s businesses?
Business owners can either go online and complete their own business valuation or, alternatively, ask their accountant, banker, financial planner or selling agent to complete it with them. This will give business owners the opportunity to obtain both an objective assessment of the current value of their business and an understanding of how they can bridge any gap between the current value and the value they are hoping to achieve. Such an understanding ought to equate with piece of mind that their succession plan is achievable.
If you are interested in valuing your business, retaining and motivating staff or succession planning, contact Kelly & Co on 466 5062 or email jkelly@kelly.co.nz
Buying or Selling a business?
Get a business valuation for $1,600 (ex GST)
Contact John Kelly on 466 5062, email jkelly@kelly.co.nz or click below to find out more information: