Selling a business is a lot like selling a home. You benefit by taking advantage of the equity built over the years. But there are potential pitfalls when selling a business, especially if this is new to you. The world of mergers and acquisitions is very specialized and it requires experience to successfully navigate and to maximize your business value for strategic and financial acquirers.
As you prepare to stage a business for sale, note that you may have multiple reasons to sell your company (liquidity, retirement, family buyouts), but acquirers will be less sentimental. They purchase businesses because A) they're profitable, B) they are strategically important, and C) the businesses can eventually be sold for higher value.
Acquirers gauge the value of your business largely through earnings. But the quality of earnings can vary, and sophisticated buyers will reward (or discount) accordingly. With your EBITDA, you can calculate the worth of your business because businesses are valued as a “multiple of EBITDA,” and earnings are the gold standard for determining what acquirers will pay. That way an acquirer is assured that he is not buying a $50 million company that is on the verge of bankruptcy. (EBITDA is net income, plus interest expense, plus taxes, plus depreciation and amortization.)
Earnings are affected by business operations in three categories: financial, nonfinancial, and risk.
Interested in reading the full article? Check out: How to Get Top Dollar When Selling Your Business
About the Author
Scott is president and CEO of BlueTarp. He has spent the majority of his twenty year career in financial services helping businesses grow more rapidly through the effective use of credit.More Content by Scott Simpson