The Importance of Valuation in Business Sales

With decades of expert valuation and real-world business transaction experience, Exit Strategies routinely values companies and positions them for successful sales. At a minimum, buyers should be willing to pay the fair market value of a business.

The initial and perhaps most important step in selling a business is a thorough, objective, and accurate business valuation. Too many sellers and brokers shortcut the valuation phase, not understanding that it is an essential step to accurately predicting selling price and cash proceeds. Both overvaluing and undervaluing a business leads to bad decisions and produces poor results.

The business valuation process involves gathering relevant facts, properly normalizing financial statements, identifying intangible assets, analyzing business value drivers and risks, and developing credible financial projections — all from an investor perspective. And of course, it involves correctly applying accepted valuation methods, without bias.

Many industry rules of thumb are available to estimate value, however, they are often outdated and ambiguous, and are frequently misapplied. Experienced intermediaries know that rules of thumb should not be relied on as a valuation method and are just one of many data points. It takes extra time and expertise to produce a credible and reliable valuation result, which is why many business brokers don’t do it.

There are three main valuation approaches and multiple accepted methods for valuing businesses within each of these approaches. The methods that our team of M&A advisors and valuation analysts use and ultimately rely upon will always depend on the facts and circumstances of each target business.

Once fair market value is understood, Exit Strategies knows what it takes to leverage the synergistic benefits of target strategic buyers to derive a premium price from the market.

Exit Strategies Group (ESG) is a California-based provider of strategic merger and acquisition advice and execution, and business valuation services. Founded in 2002, with offices in San Francisco and Portland, ESG represents private companies on the sell-side and works with private equity, public and private companies and family offices on the buy-side. For more information visit www.exitstrategiesgroup.com