Selling Your Business? Here’s How to Calculate Its Market Value
When selling a business, the owner must make several decisions. Their desired outcome defines how they are selling the business and what comes with it. Many business owners sell when they are retiring or starting something new. How they sell their business determines what rights the owner has afterward and what they can or cannot do with existing products.
A business sale could shut down the business completely or transfer it to a new owner. It all depends on what the owner wants to do with their company, products, or services. A broker can help the business owner make these tough decisions.
Get an Official Appraisal For the Business
The first step when selling a business is to hire an appraiser to provide an official valuation for the company and its assets. This shows the owner how much they can expect to make if they decide to sell the company. The valuation is based on the profitability of the company with its current product lines or services.
All assets owned by the business are added to the total price of the business. A business owner that wants to determine the exact worth of their business gets an appraisal to decide on the best time to sell. Companies can find more at cgkbusinesssales.com about getting a business valuation.
Assess the Commerical Property
The condition of the commercial property owned by the business determines its value. When selling a business, the owners often sell the commercial property used for the business. When selling to another business, the property must pass a property inspection and be structurally sound.
Any issues may require the owner to complete repairs or reduce the listing price for the property. Most commercial lenders will not provide a mortgage for any property that doesn’t pass an inspection. If there are any building code violations, the owner must bring the property up to code before they can sell it.
What Assets Come With the Property?
All assets that come with the property must be appraised and inspected. If the business owner wants to sell equipment with the property, it must meet certain standards. A realistic market value will apply to the assets, and the owner must include these values in the total listing price of the property. Once the business sells, all assets listed in the contract become the property of the buyer.
How Much Does the Business Earn Each Year?
Tax returns and income statements for the last three years are provided to any buyer who is interested in purchasing the company. The records must show stability within the company and ongoing profits. Buyers and investors won’t purchase a company that is failing and won’t generate at least some immediate profits.
They buy companies that have at least some thriving product lines or services that generate earnings regularly. When preparing these records, the owner must provide realistic valuations and should never inflate earnings.
What Is the Current Stock Price?
The current value or the company’s stock could define the net worth of the business. The calculation is based on the current cost per share and the total number of shares available. The total defines additional revenue that could be earned by the company and give a new owner more of an incentive to buy the business. High share values indicate the company remains successful and is a solid investment for anyone who wants to purchase its stock. If the value is low, the company is more than likely failing.
How Much Debt Does the Company Have?
The company’s debts could say a lot about them, too. A comparison between their incoming profits and the current debts may indicate that the owner owes more than they are earning. Under the circumstances, the business could go under. Buyers will review these details according to how much debt they can cover if they purchase the company.
Many investors will pay off debt for a controlling interest in the company. If the owner wants to sell the business completely, they may want to discuss their debts with the investor first. It could give them the opportunity to settle their debts and get a return on their investment when selling. The terms of the sales contract define what party is responsible for their debts and how and when the debts must be paid off.
How Will the does Company generate Profits After the Sale?
Many companies have thriving product lines that generate exceptional profits. When selling the business, the owner will sell the rights or patents for these products to the new owners. Some business owners may choose to sell a select number of their products or patents, but they could keep certain rights to the products. When reviewing their options, the business owner must determine how successful product lines are and how much they are really worth.
A broker could help the business get a fair and reasonable price for these products and patents. The valuation is based on how much the business owner could generate from the products throughout their lifetime as the business owner. Once they sell the products, the business owner will not have any rights to the products and patents. They cannot use the products in a separate business venture. The new owner can alter or change the products at their discretion.
Business owners choose to sell their organizations for a variety of reasons. They may choose to sell an existing business because they are retiring and do not have an heir. If the owner wants to shut down the company completely, they would sell each asset and close the business for good. Some business owners may choose to go in a completely different direction and start a new venture.
For whatever reason, the business owner could sell the business or its assets. The process requires them to start with an appraisal of the business and its assets. By getting an appraisal, the business owner can find out how much the company is really worth and maximize the return on their investment.
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