Establish market value of your business today

Obvious questions for most business owners when thinking about selling their business include;

• “How much is it worth?”
• “How do I increase the value before selling?”
• “When is the right time to tell everyone?”

In this first stage of the VSD we analyse your financials to give you an appraisal (i.e. an indication) of what the potential value is NOW.

This is not a formal valuation but a realistic assessment of value NOW based on the information you provide, any available comparable market data and our extensive experience in the small business sale market.

From value NOW you can then better understand if and how you can increase that valuation before selling. Our appraisal will also help you better understand how different types of buyers will assess the value of your business to them. The diagram opposite illustrates the difference in approach for 2 common buyer types. Financial Buyers (in very simple terms are looking exclusively at immediate financial returns) and Strategic Buyers (who in simple terms will be looking more towards higher returns but from longer term growth opportunities and operational efficiencies).  

The appraisal is a 'line in the sand' to evaluate whether you would still want to sell and it's a baseline from which you can start to think about how to increase the value before you sell.  A realistic appraisal also ensures you avoid the costly implications of relying on extreme assessments of potential sale value.

1. Overvaluation will lead to lost time. If your business is advertised for an over-inflated value you just waste your precious time and lose legitimate buyers who will quickly move on to other opportunities.
2. Undervaluation is often the result of a lack of planning. You lose value if you rush the sale process and are forced into selling quickly. You can also lose potential sale value when you don't get expert, independent advice. If you haven't sold a business before you can easily convince yourself that the business doesn't have enough value (based on your tax returns) to make it worth the effort to properly prepare for a future sale of the business.

During this process we identify obvious barriers to selling the business and provide recommendations on what can help to overcome them.

We unpick your business numbers to establish the level of profitability over 4 to 5 years. Typically the ‘raw’ numbers from your financials or tax returns do not reflect the true underlying profit of the business, as a buyer would see it. We go through the financials line by line and identify the ‘adjustments’ ("addbacks") required to estimate the ‘adjusted’ net profit.

Most buyers and their advisors understand this process of adjustment and need it for their assessment of the value of your business to them.

Typical adjustments include;

• Increasing underlying adjusted net profit by adding back personal expenses paid for by the business, or
• Decreasing underlying adjusted net profit by adding in a salary for the working owner who might have legitimately taken money out of the business as dividends.  

Up until actively thinking about selling many owners, and their advisers, don’t tend to do regular or meaningful analysis of the true underlying financial performance and potential sale value. So for most owners this stage is incredibly insightful in helping to see your business as a buyer might.