One of the most exciting and daunting experiences for a business owner is when the time comes to sell the business. After years of hard work, development, and growth, the day eventually arrives when you believe the best option is to cash out and move on to the next chapter of your life.
One of the most essential steps in the selling process is to obtain an independent valuation of your company so you can understand the fair market value of the business as a whole, as well as the underlying tangible assets and goodwill. The appraiser you choose to work with should be certified through the NACVA, ASA, or some other nationally recognized association. Make sure you discuss their credentials before moving forward.
If you own a lot of equipment and real estate as part of your asset base, you should first engage with accredited appraisers who specialize in those areas before completing the full company valuation. Once that’s complete, the business appraiser will include those value estimates as part of their review, along with the rest of their analysis.
Take time to go through your financial documents with the appraiser so they understand the adjustments that should be made to non-recurring and discretionary expenses so you can present the optimal profitability of the company. Two of the key variables in the analysis will be your gross revenue and adjusted net income (EBITDA), along with the potential for future growth, which can be determined based on a reasonable forecast of future revenue over the next 3-5 years.
Since you are selling the business, as an owner, you are expected to settle the liquid assets and liabilities reported on your balance sheet, specifically the cash, short-term receivables, and any outstanding debt. Hopefully, the net outcome for these is positive, so in addition to the value of the business, you can walk away with additional cash to supplement the overall sale price.
The buyer understands that when they purchase the company, they will need to develop their own sources of cash flow, whether that be personal capital, taking out new loans, or developing equity from investors.
Selling your business will likely take a lot of patience and communication to provide all the necessary support documentation to potential buyers, and you may want to engage with a business broker familiar with your industry and markets, who can assist with the overall process. In the end, make sure you are comfortable with all the terms of the deal, and carefully read through the documentation involved. Consider hiring a business attorney to make sure you have all your bases covered and when it is all over, take a deep breath and enjoy what comes next.