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From the category archives: Certified Business Brokers News

Based on our experience, we can provide you with a value range that you are likely to achieve in the current market so you can make an informed decision as to whether to pursue a sale of the business now or delay to a future date.

Buying a Business - What is the Value of Goodwill for a Buyer?

Since the biggest part of the purchase price of a profitable small business is goodwill, it is important for a buyer to have knowledge and understanding of just what goodwill is and why there is value in it. Much of the value of a business is not to be found in its hard assets such as the fixtures and equipment, but in the intangibles that create the income. A simple way to describe goodwill is the difference between the current market value of the tangible assets of the business and the total value of the business.

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Valuation - The First Step Towards Selling Your Business

Just as an athlete might get a physical to determine their preparedness for a marathon, you should also measure your Company's fitness for the marketplace. A valuation is an unbiased examination of your company's marketability and helps you pinpoint where your company is in its business cycle. It is the foundation, the meat and bones, on which a business owner can base their readiness to sell.

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Factors That Negatively Impact Business Value

The following are factors that can have a negative impact on the value of a business and some are issues that can rear their ugly head during the due diligence investigative period. Keep in mind that this list is a compilation of potential problem areas and do not apply to all types of businesses. Accidents New competition in the market Changes in technology Equipment obsolescence Facility obsolescence Market shifts Declining Revenues Poor Financial Records is one of the biggest reasons businesses do not sell or sell at a value considerably less than market value. Interest rate flux Low margins Capital improvements needed Lack of Supplier Diversity Lack of Customer Diversity - If too much business is concentrated in too few customers, the risk factor is increased. Should one or more of the customers discontinue patronage of the firm, revenues will be seriously impacted. Uncollectible receivables Low backlog Restricte ...

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Reliable Financial Data Is A Top Driver Of Business Value

The lack of financial integrity is one of the most common hurdles encountered during the process of selling a small business. What is being bought or sold is primarily a future stream of income. Not the assets or property of the business, but the income these assets will generate in the future.

Since future income is impossible to definitively compute and hard to estimate, the company's financial history, at least, provides concrete facts and insight to future performance. So, reliable financial records are not only a critical element of business management but also support the business' historic profitability, operational efficiency, and its solvency.

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Recasting Financial Statements: A Crucial Step In Preparing Your Business For Sale

Financial statements and tax returns for most privately-held businesses are prepared for tax purposes, not for business sale purposes. The objective of business owners and their financial advisors is to use all available accepted accounting methods to minimize taxable net income. This is effective for minimizing taxes, but may paint an incomplete picture for business valuation purposes….and for showing the company’s true profitability to a potential buyer. The goal when presenting financial information to a potential buyer is to maximize net income by clearly outlining the owner benefits, net income, and cash flow of the business.  Since bottom-line earnings is the primary factor that influences business value, a proper presentation of the financials is essential. Prospective buyers must be able to appreciate the full benefit of owning the business and be able to understand its actual income-generating ability. By recasting, or adjusting, the financial statements, the actual financial performance of the business can be demonstrated.

 

 

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