To determine the true value of a business, valuation methods are used. However, one must understand that the value of any business really boil down to what is the perceived future financial benefits that a new owner would receive. Naturally factors such as inventory and other assets would come into play. But determining a value is not as simple as what the owner would like to get for the business.
Business Brokers can assist in determining the value of your business.
Think about it for a second. If your key staff learn of your desire to sell the assets of the business, they may feel uncertain as to whether or not they would be able to stay employed in the company after it is sold. If they feel uncertain, they may seek employment elsewhere. This in turn may have impact on the performance of your business thereby reducing your financials making your business less attractive to investors.
Also, the same may apply to your suppliers. Vendors may no longer want to extend credit facilities for fear of being exposed when it comes to the settlement of their receivables.
Bank and other debt facilitators my feel uncomfortable with extending you additional short term facilities for fear of not being repaid.
Based on the above, we strongly recommend that ALL business sales be kept strictly confidential.
Super question! Owners Discretionary Cash Flow (ODCF) is the term used to determine the true earning potential or benefit of a small to medium business (SME) privately held business.
As one can imagine, SMEs tend to expense everything in order to minimize their tax liability. For instance, the owner may pay his life insurance premium through the company and have this as an expense item. This would have the impact of reducing the company’s earnings. To cater for this, when doing a pricing analysis of a business (a valuation in simplistic terms), we as brokers add these owner expensed items back into the business ‘as if it did not exist’ thereby increasing the bottom line. Why? Because the owner did not need to have the company pay for this insurance and had he not, then the company would have had the benefit of a higher profit level. The terminology that we use to adjust the financial statements is ‘Recast’ or ‘Normalize’ the statements to reflect the true earning potential of a privately held company.
Please note that there is more to this. We are being over simplistic here. You can learn more by downloading the FREE Guide to Selling Your Business located on the right side.benefit