Selling a Business

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Business Valuations

There are many different methods used to value a business, most of which conclude similar results, however it is ultimately subjective and based on what the sellers view of the value of the business is, and what the buyer is willing to pay. There are many factors which have to be taken into consideration such as:

  • The financial position of the business (good or bad)?
  • How long has business been in operation?
  • How long has the present owner owned it?
  • Are their audited financial records for the business?
  • What condition are the assets in?
  • Is there a renewal option on the lease?
  • Are the products or services in demand?
  • Are the products being marketed effectively?


Effective Valuations

One of the most effective ways of valuating a small to medium size business is to use the following formula, which over the years has proved itself in the business broking industry to be fairly accurate. The method is based on using the average of three valuations namely; Extra Earning Potential (E.E.P.), Return on Investment (R.O.I.) and the Payback Period.

  • Extra Earnings Potential (E.E.P.) – The extra earning potential is the extra one expects over and above a salary, plus the investment income from banking the money available to buy a business when one takes on the risk of owning that business.
  • Return on Investment – The return on investment is the rate of return one receives from investing the capital cost of the business taking into consideration the risks associated with that business.
  • Payback period – The Payback Period uses an experienced “guess” as to the number of months one would expect to take to pay for the business out of the monthly profit. When making use of the above formula there are certain “cap rates” which apply and are most important when valuing a business.

As a professional business broker, it is our responsibility to advise clients on the valuation of their business. Based on the complexities and subjectivity, we also advise our clients to have their accountant or auditor assist with valuation inputs, as they have a better view of the businesses historical financial position.

October 31, 2018 / by / in , ,
Why use a professional business broker?

Selling a business is not an easy task, with many risks for both sellers and buyers, if not done correctly. Some business owners feel that they can sell their business themselves, but most cant. It’s not about just placing an advert on the internet and expecting to sell to the first person who calls. The process of selling a business requires the buyer to complete a due diligence to influence their decision on whether or not to purchase the business.

This process is a rigorous one and one which you do not want to be doing with an unqualified buyer that is not in the position to buy the business. Many people will enquire, ask many questions, visit the business and never get back to you. This presents other challenges in keeping the sale discrete and confidential so that your competitors, customers and employees do not know until the time is right.

Professional business brokers have extensive experience, are fully compliant with industry requirements and follow best practice to assist at reducing risk through the sales process. Professional business brokers qualify prospects from the overwhelming majority of people who don’t really know what they want and if they can afford it. Many buyers that are on the market are considering buying a business for the first time and are in need of sound advice and guidance.

The business valuation another area where sellers tend to struggle, whereas a professional business broker uses various methodologies to value a business, has a handle on the local marketplace and access to market data, and pricing information, not available to a seller. Business brokers generally have a backlog of buyers that they work with on a current basis. They prepare a business profiles on the businesses they represent, designed to show the business in its best light.

They know how and when to advertise, when to use trade publications, online media and how to qualify buyers. Professional business brokers aim to assist sellers at getting the best price for their business. Sellers usually receive a higher price when working with a business broker, even after broker commission, than they would if selling the business on their own.

The effective marketing of your business is essential, without which you may as well be sitting in a dark room alone with the door closed, you know you are there but nobody else does. Business broking is a relationship business, this means that our brokers build relationships with buyers and sellers to continuously improve mindshare, so that when they think of buying or selling a business, they think of Renwick Business.

The Renwick slogan is “Our Buyers of Today are our Sellers of Tomorrow “, which is based on long term relationships, where a buyer eventually becomes a seller and we have instilled confidence in them to use us again to sell their business or to assist them in acquiring another. The majority of buyers and sellers will only ever call one broker or business brokerage to assist them. They will always call the broker who is top of their mind and is leading in the industry and who they believe will be able to best assist them at concluding a transaction. We are those brokers!

October 25, 2018 / by / in