How much is my Fort Lauderdale company worth? This is a question that I get asked many times as a Fort Lauderdale Business Broker. However, I do not wish to sell it. It is nice to know how much this business is worth after working so hard to build it.
In addition to working hard, you also deserve to know the value of your Fort Lauderdale business.
This is a wise decision, even if you do not intend to sell the property shortly.
If your Fort Lauderdale business cannot be sold, all you have is a job. Perhaps you think you have a successful business in Fort Lauderdale, but what you have is a high-paying job.
Some people believe they will sell their Fort Lauderdale business when they retire. That is not a problem. A business is not a business if it cannot be sold. The object has no value if you are unable to sell it.
It will be necessary for you to save for retirement in another manner. For this reason, it is essential to know how much your Fort Lauderdale business is worth.
As outlined in this post, I will demonstrate how to conduct a small business analysis and valuation on your own. A subsequent post will outline ways in which that value can be increased.
Remember to find out how much your small business is worth to someone else who is interested in buying it. It does not matter how much you value it. Remember this as we review the following material.
The reality is that many Fort Lauderdale businesses are bought and sold without considering the facts.
When purchasing a home, buyers determine how urgently you need to sell and what is going on in your personal life. The buyer also considers the overall economic state when setting a price.
External factors often affect the price of a small business far more than they ought to – and to the detriment of the business owner.
Don’t discuss personal matters when selling your small business if you want to get the highest possible price. Keep it simple. Selling your business at the highest price is the best way to maximize its value.
It is fair to value your business by taking your net income (after subtracting a reasonable salary from it if you are the owner), adding back any personal expenses the business covers for you, and multiplying that number by a standard multiplier.
Additionally, if the business owns property or inventory, you should include that information. It may be that you are selling to reduce business debt. The value of your small business would be reduced if you have liabilities.
Consider the case where your small business does not have any inventory, assets, or liabilities. Your Fort Lauderdale business primarily provides services. Consider the following scenario.
Suppose your Fort Lauderdale business generates $500k in revenue and incurs $400k in expenses each year. However, $50,000 of those expenses are for items that you would have to cover personally if your company had not picked up the tab. (I do not suggest that your company pay for your personal expenses. However, some people do this.)
If you fall into this category, you will need to include the $50,000 back into your net income. For example, your actual business expenses are only $350,000, despite claiming $400,000 as tax expenses. As a result, the new owner will be able to generate profits of $150,000 per year.
However, the new owner might not be employed by the company. A manager could be hired to manage the company. In the event that she could do this, she would have to pay the person she hires $60,000.
As a result, your Fort Lauderdale business likely earns a net income of $90,000 annually before taxes. ($150,000 profit less $60,000).
You can think of this as your business’ “free cash flow”. The number is of vital importance. It will be discussed in more detail shortly.
Initially, you should. Lesson on History
Do the exercise above for the last three years’ income of your business. Consult your budgeting software for some reports.
In the past few years, what has been the free cash flow?
Do you believe it is rising or falling?
Explain to the new owner what you have done differently and what they can do to maintain the trend.
You should explain why it is declining. You will need to present a compelling case to convince the buyer that the decline can be reversed.
You may be able to ask for a return ten times higher than what you received last year if the free cash flow is rising. Therefore, if you have a business that is earning $90,000 in net income, you should be able to ask for $900,000 for it if that income is increasing.
You may be lucky to get five times last year’s return if your net income is decreasing. As a result, the buyer will not be interested in that risk because the risk is increasing. If that were the case, you would probably be lucky to receive $450,000 for your business.
When buyers perceive low risk, they will pay more for the business. Become familiar with the prospective buyer.
Has she previously worked in the industry?
Is she the owner of any other stores similar to yours?
Is she prepared to take over with trained personnel?
By reducing your buyer’s risk, these assets strengthen your position. Discover as much as you can about the buyer and try to emphasize to her how low the risk is for her in her particular case. Is this individual purchasing the business in order to supplement her retirement income? Will she attempt to grow the business substantially?
Reduce as much as possible the buyer’s (and your) risk. You should keep an eye on employee theft as one of the most important steps you can take.
In fact, a third of all companies fail as a result of this drain on resources. You should implement anti-theft procedures and show prospective buyers how you’ve minimized this risk. This will enhance the value of your company.
It is important to be honest at all times. Landmines should be disclosed if they are present. Tell the person if you believe that they are walking into a hornet’s nest. It will improve your karma and you will spend less time in court if you do so.
3. Market Research
It is important to keep in mind that the multiplier I mentioned above is a rule of thumb that varies from industry to industry. Research what similar businesses are selling for in your field. Visit eBay, Craigslist, and other business-for-sale websites. You will probably find the best information here.
You will do better when you sell your business if you are well-prepared with facts.
Make sure you do not expect someone to pay you what you think your Fort Lauderdale business is worth or to compensate you for all the hard work you have put into it.
When it comes to selling your Fort Lauderdale business, be honest and realistic and instead do your homework.