Some Key Factors in Pricing a Business

The following questions are useful to understand a business and thereby price that business more prudently:

• What's for sale? What's not for sale? Does it include real estate? Are some of the machines leased instead of owned?
• What assets are not earning money? Perhaps these assets should be sold off.
• What is proprietary? Consider trademarks, copyrights, patents, software, etc?
• What is the competitive advantage? Does the business have a certain niche, superior marketing, desirable location?
• What is the barrier of entry? Is it capital, low labor, tight relationships?
• What about employment agreements/non-competes? Has the seller failed to secure these agreements from key employees?
• How does one grow the business? Maybe it can't be grown.
• How much working capital does one need to run the business?
• What is the depth of management and how dependent is the business on the owner/manager?
• How is the financial reporting undertaken and recorded, and how does management adjust the business accordingly?

These are important questions for sellers and their advisors to consider when setting the price of a business for sale. A qualified business broker is an indispensable took to help answer these questions and determine a most probable selling price for the business in its marketplace.

The Hidden Values in Your Business

Surveys have shown that a majority of business owners have no idea what their business is worth, that they have a majority of their net worth tied up in their business, and that they do not have an exit strategy. A business broker professional is a good person to call on to get an idea of what the business might sell for in the marketplace.

Certainly, the financials carry a lot of weight in figuring what a particular business will bring in the marketplace. However, a professional business broker can also tell you about those hidden values your business most likely possesses. It's these hidden values that often capture the interest of buyers and make a business more valuable than what the numbers suggest. Keep them in mind when placing a price on your business, and make sure that a prospective buyer is made aware of them. They might be called the non-financial value of the business.

To learn about the hidden values in more detail... click here.

Using Technology to Increase Business Value Before a Sale or Merger

Using Technology to Increase Business Value Before a Sale or Merger

“My friend Norman Katz contributed this great article” Chris

Improvements in information technology and business processes can make an important difference in not just the perceived value of a business, but the actual value too.

Technology improvements that are visible to potential buyers are the business software applications that run the company. The Enterprise Resource Planning (ERP) system is typically the core business software application, encompassing functions such as purchasing, sales order processing, accounting, inventory control, manufacturing, and distribution. Sometimes separate applications for inventory control or fixed asset management can be implemented to gain quick control of chaotic situations. And with chaos controlled and business processes running smoother, a potential buyer will see a well-run – or at least better-run – enterprise. Further, new business software enables better reporting, showing the potential buyer information based more on fact than on fiction.

The use of barcode scanning for fixed asset management, inventory control, picking & packing, and receiving showcase a company that has kept up with available – and quite affordable – technologies and is operating more efficiently than one who still processes such information manually. In fact, such technology implementation may be required in order to provide potential buyers with satisfactory reports in regards to the company’s operations and financial position.

For companies who are required to conduct business with customers via Electronic Data Interchange (EDI) and have taken steps to integrate inbound and outbound data to business software applications (i.e. the ERP system) showcase to potential buyers that they are committed to reducing non-value-added manual processes such as data entry of information, which is also prone to errors.

And while the implementation of such up-to-date technologies does not mean that fraudulent activities have been reduced, there is an argument that the use of such technologies does go along towards the mitigation of fraud versus manual or paper-based transactions.

Advances have made these technologies achievable (affordable and available) for even small business owners to embrace and represent a worthwhile return on investment.

Norman Katz is President of Katzscan Inc., a consulting firm located near Fort Lauderdale, FL specializing in supply chain technologies, business operations, turnaround management help, and fraud & risk detection & reduction. For more information, please contact Norman through the company web site at www.katzscan.com.

Propert Valuation of Your Business

Sellers obviously want to get the most money for their business when selling. However, I have observed that sometimes asking prices that are set too high can impair the selling process and elongate or even prevent the sale. In the first 30 – 60 days that a business is listed will receive the most buyer attention. There are limited number of qualified buyers for any business and you are competing for that buyer’s attention. If you have an overpriced offering, it will turn these buyers away. Buyers that have looked at the business once, but have dismissed it because of the price, typically move onto other opportunities. Once they have moved on, it is very difficult to have them look again. Any extended time on the market will confirm their suspicion.

Sellers who want to obtain the highest price will typically do these following steps:

1) Have the business valued by a professional who is knowledgeable about the marketplace – This will give the owner a realistic idea of what the most probable selling price could be.
2) Hire a business broker – They have the training and experience to position the business in the market but also to successfully lead the buyer through the entire process
3) DON’T OFFER THE BUSINESS TOO HIGH – And be willing to reduce the price (if necessary) in order to increase buyer activity.

Working with a business broker will ensure your company is ideally priced from day one.

Written By:

Dave Gorman
Senior Business Broker
Sunbelt Indiana Business Resource
317-218-8626
Email: dgorman@sunbeltindiana.com