While your accountant is working feverishly to get your 1099s and W2s out, it’s a good time to think about using your up-to-date year end financials to have a business valuation done.
Some businesses have performed extremely well in the past few years. A few have not. Keep in mind that a company’s value is based on its earnings, not its window dressings. Sure, the attractiveness of the industry has something to do with it; a great staff and brand new equipment certainly helps – but earnings are the primary driver and without them, a business usually can’t be sold for much. How much? You need a valuation to determine that.
Profits (aka earnings or “the bottom line”) can be increased two ways: Bring in more revenue or reduce expenses. That’s it. There is no other magic formula and buyers typically won’t invest in a dream or a vision that hasn’t yet worked for you. If you won’t invest in your dream or vision, they certainly won’t.
For the profitable business with solid infrastructure in an expanding industry there are MANY options and a large pool of buyers. So what are the options if you’re in a breakeven or loss situation? Sometimes the answer is close the doors and liquidate the assets. Other times, they can find an employee or someone else who has a reason to buy such a business and seller-finance a meager purchase price over time. Occasionally, they will hit the jackpot and a competitor will pay a premium just to get them to exit the playing field. Often, the BEST option (if the owner can afford the time and financial investment), is to make the business a going concern. Turn it into something that people want to buy. Put yourself in the position of a consultant – what would you advise the owner of your business to do to make it more profitable? You may need to consult with your accountant, attorney or business advisor to make sure it’s a good idea. Then do it. THEN – after three years or so of strong earnings – sell it.
Selling a business should be a carefully planned event. The owners who get the highest selling price are often implementing an exit strategy they planned years earlier. When you have the foresight and the strategy in place, you will be rewarded for your efforts.