Buy a Business
A realistic business valuation requires more then merely looking at last year's financial statement; it requires a thorough analysis of several years of the business operation and an opinion about the future outlook of the industry, the economy, and how the subject company will compete.
Most people believe that a business should be sold for Fair Market Value. The term Fair Market Value is defined by the IRS at Rev. Ruling 59-60 as follows:
"the price at which the property would change hands between a willing buyer and willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts."
There are a number of different methods to determine a fair and equitable price for the sale of the business. The following lists a few methods to determine the price:
- Capitalized Earning Approach — This method refers to the return on the investment that is expected by an investor.
- Excess Earning Method — This method is similar to the capitalized earning method, except that it splits off return on assets from other earnings.
- Cash Flow Method — This method is usually used when attempting to determine how much of a loan the cash flow of the business will support. The adjusted cash flow is used as a benchmark to measure the firm's ability to service debt.
- Tangible Assets ( Balance Sheet) Method — This method values the business by the tangible assets.
- Value of Specific Intangible Assets Method — This method is based upon the buyer's buying a wanted intangible asset versus creating it. This method also takes into consideration valuing the goodwill of the business.
Sell Your Business
It is more than just important to know how, when, and how much to sell your business for. There is a big difference between properly preparing your assets to be sold and putting a for sale sign on the front door. Knowing the difference can pay big dividends.
Seattle Chamber Of Commerce Resources For Selling A Business
Major issues to consider before deciding to sell your business.
Seller Financing - With as much as 90% of the sales of small businesses involving at least some seller financing, it may be unrealistic to expect to receive a lump sum payment. Yet financing can be tricky, as agreeing to a long period of payments entails the same type of risk as owning the business and depends on the business' future success. Alternatives may include getting the buyer to use non-business assets as security for the loan.
Employee Stock Ownership Plans (ESOP) - One way to sell the business to your employees is through an Employee Stock Ownership Plan (ESOP). ESOPs are tax-qualified employee benefit plans that invest primarily in stock of the employer. Significant tax advantages may be available to both an individual selling the business to an ESOP and the employees participating in the plan. The many tax incentives and benefits of employees having ownership in the business make such plans attractive even when business owners wish to sell only part of their businesses.
Selling To The Public: Initial And Direct Public Offerings - Primarily used to raise investment capital, Initial Public Offerings (IPOs) and Direct Public Offerings (DPOs) may be a way of maximizing the return from the sale of your business.
Sales Agreement - Checklist of items that must be on the written sales agreement.
Make Sure The Price Is Right - Find out what your business is worth before entertaining any offers.
Finding A Buyer - Once you've decided how much your business is worth, the next step is to find a buyer.
When It's A Seller's Market - Take a look at what happened to 22 companies previously featured in Inc. magazine's For Sale column.