When it comes to selling or buying a company there is a big difference than buying anything else. This time, the stakes are higher and costs are more; thousands or even millions more. Still, a business is a product and products are sold in a package. In determining what goes into the package think of an iceberg.
About 85-90% of an iceberg is under water, hence the phrase, “you’re just seeing the tip of the iceberg.” A business is somewhat like that. What is visually seen, the 10 to 15%, are appearance items; the building, location, furniture, fixtures, machinery and equipment, inventory, vehicles, colors of the carpet, etc., but what keeps the business afloat and buoyant is below the surface just like the iceberg.
Packaging a business for sale requires compiling the financial and asset data of the company over a historical time frame to substantiate value. All of which is unseen or under the iceberg except to the eyes of the owners and businesses accountant. To attract a buyer the financial information is brought to the surface, analyzed and put into an organized format creating the business valuation. It’s use is to visually and orally demonstrate and defend the range of value of your business based on the financial facts to potential buyers and financial institutions.
Components of Your Business Valuation
- Re-Cast Financials – Is a meticulous in-depth study to determine Seller’s Discretionary Earnings (SDE). Most often three, but up to five years of supporting documents including Tax Returns, Profit & Loss Statements (P&L’s), Balance Sheets and other data are used to support a Business Valuation and the Financial Recast.
- Assets List – A list of all furniture, fixtures, vehicles, machinery and equipment. As a Senior Business Analyst and Machinery & Equipment Appraiser we are uniquely qualified in providing a defensible and tenable Fair Market Value (FMV) of your business and its assets.
- Justification for Purchase Test (JFPT) – A report which demonstrates that the company under current operating conditions meets the three financial criteria of a viable business sale.
- Determines if the business is capable of providing a manager (which may be the buyer) an income reasonability equivalent to, or more than can be earned as an employee or manager in the private sector in that or similar industry.
- Determines the amount of capital the business will have available to service the debt after the buyer makes a reasonable down payment.
- Determines if the business will give the new owner an aceptable Return on Investment (ROI) after the purchase.
STRAIGHT TALK – The greatest roadblocks in acquiring any business are doubt and uncertainty. Until you alleviate these two things in the mind of a buyer they will not make an offer nor will a bank approve any financing. After bringing the businesses financial attributes to the surface as in the iceberg analogy you can now think of the business valuation as a lighthouse, attracting the attention of buyers and financial institutions. The business valuation is the defining document that provides the necessary clarification to substantiate the value of a business to potential buyers and their bankers.
Bob, Sherri, Patsy and I really appreciate the hard work and persistence shown by your company on our behalf. You were always prompt to answer any questions that we had and very helpful with marketing ideas and suggestions. Again, our thanks and we would not hesitate to offer our recommendation to anyone concerning your professionalism, integrity and ability to obtain results.
~J. Loncarich & B. Lewis (PROFESSIONAL SERVICES - LAND SURVEYING)
I would like to say, my experience with Northwest Arkansas Business Brokers has been a pleasant one. I have enjoyed getting to know Don, and Carol Godsey. They have been very helpful to me. They have educated me and guided me through this journey. The Godsey’s have all been very patient and understanding as they well know how emotional and stressful it is to sell a business you have worked so hard to build.
~J. Burks (SERVICE INDUSTRY – RETAIL)
We just wanted to write you a short line to let you know what a pleasure it has been working with you to sell our business of 15 years. We always felt at ease with your company. We appreciate all the time and hard work you put into the sale of our business. We thought everything went very smooth all the way through closing. We really appreciate the professionalism and confidentiality you showed us from the beginning to the end.
~T. Craig (SERVICE INDUSTRY – RETAIL)