Cash is King!
business articles and tips
posted: February, 2011
What Is It Worth
When is the best time for you to sell your business? Answer: whenever you feel like it.
Seriously, you may want to do a few things first before putting your business on the market, namely ensuring that your cash flow is strong. That way, you can guarantee that your business is valued properly, reflecting its cash position over the past two or more years.
We all know that the last two years have been especially challenging to many business owners. Sales are down, prices have been cut, inventories slashed, and your current cash position may not accurately reflect the value of your business. Yet, there are some things you should keep in mind when valuing your business:
Predictable Cash Flow
Do you have a steady amount of money coming into your business every month? According to Business Week, buyers will take your current cash flow and project out by as much as five years. They then set a price on those earnings that guarantee a decent return. If you have an established enterprise that has taken a hit recently due to the economy, but is trending upwards over the past few months, a buyer may want to look at your cash flow for several years in the past to gauge its potential for future profit.
Intangibles
There are certain things about any business which help set it apart from the pact, namely intangibles such as physical location, proximity to suppliers, nearby colleges, customer base, and competition, to name a few. If you are one of many nail salons in your area, don’t expect to fetch top dollar for your business. However, if you own the only ice cream shop adjacent to the fairgrounds, you may have a captive customer base available. Consider every possible intangible when valuing your business.
Business Broker
Your books may be in excellent shape and your intangibles known, but does that you can put a price on your business? Not likely. Business brokers and NACVA certified valuation analysts have the training and background to put a price on your business.
“The National Association of Certified Valuation Analysts (NACVA) supports the users of business and intangible asset valuation services and financial forensic services, including damages determinations of all kinds and fraud detection and prevention, by training and certifying financial professionals in these disciplines. NACVA training includes Continuing Professional Education (CPE) credit and is available to both members and non-members.”
Seek the assistance of a professional to help you value your business; obtain references from clients.
Customer Wants
Finally, what a business is worth and what a customer is willing to pay for it can offer stark contrasts. Ultimately, you’ll need to come up with a price you can sell your business for and meet or exceed that amount before agreeing to a sale.
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