Buying and Selling a Business

A business broker, entrepreneur, and executive who has been involved with buying and selling companies for almost 20 years offers advice to help you plan for the sale or purchase of your business.

Ney Grant

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Using several pricing multiples to determine the business value.

Indeed, using a number of pricing multiples is the standard way to value a business under the so-called market approach.

This makes sense: some businesses may excel in profitability, while others are asset-rich.

In such cases, you can calculate the business value using the pricing multiple that most clearly demonstrates what the business is worth.

EBITDA - based valuations are generally not suitable for small closely held businesses. A key reason is lack of consistency in how small business owners account for income and expenses and, therefore, net income.

That is why financial statement recasting is done to determine the available cash flow. Seller's discretionary earnings (SDE) is typically used as the basis for business appraisals.

The standard definition of SDE can be found here:

http://www.valuadder.com/glossary/sdcf.html

...

By: Harry Hvostov on Discretionary Earnings vs. EBITDA in Business Sales Transactions

All well-known business valuation methods are classified under three key approaches.

A number of business valuation methods are routinely used by business appraisal professionals and business people. All these methods use one of the three key approaches to valuing a business:

1. Asset.

2. Market.

3. Income.

The income-based business valuation methods include the famous Multiple of Discretionary Earnings. The method determines the business value based on its earning power and a number of key financial and operational factors.

These do include the stability of earnings and customer concentration issues referred to in the post.

All business valuations are forward-looking. No one method is better than another.

That is why a well-done business appraisal uses several methods to determine what a business is worth.

By: Harry Hvostov on A Useful Business Valuation Method in "How to Buy a Good Business at a Great Price"

Boomer business sales ...

This is real event that will happen. A msjor issue is these owners need help in establishing realistic prices and both parties need to understand the strengths and weaknesses of the owners withdrawing . One solution is to sell with a contingent payout or partial stock retention to resolve the dilmena .

By: bert on Retiring Baby Boomers Will Cause a Surge in Business Sales

Friends & Family are a Common Source of Business Financing ...

Absolutely using friends and family as a source of funding is risky. I hope I didn't say otherwise in my post. Certainly unsecured credit is something to look at, but for many friends and family is still the only source of funds available.

- Ney ...

By: on Friends & Family are a Common Source of Business Financing

Friend and Family as funding source ...

Using friends and family as a source to fund a new business is really risk. If a business goes under it can ruin ones relationship with the person that helped fund the company. In addition, using them can jeopardize their credit. One of the most over looked ways of funding a business, and probably one of the best ways to, is unsecured finance. It is a great way to finance a business that puts little liability on you. All you need is a good credit score and you are set. You can get up 150K in one year. The benefits of unsecured finance is low interest rates, you only pay back what you use (so it is like a credit card), builds company paydex score, and the little to now liability on your credit. www.randrfinance.com ...

By: R and R Finance on Friends & Family are a Common Source of Business Financing

Mailing company ...

Alex,

I think the company I mentioned was very expensive ($4 or $5 per letter!) and more M&A oriented, but I'll send you the name in a private email. As a new business broker, you probably want to stick with the invitation card style of mailing. I think Sunbelt is pretty good at training on how to do "drop cards". They do work and they are not that expensive, although I know in some markets they are somewhat over used.

By: Ney Grant on Business Brokers Employ Unsavory Marketing Tactics

name of company ...

I am a new business broker. I was wondering if you could post the name of the company you mentioned that does the mailings. thanks Alex ...

By: Alex on Business Brokers Employ Unsavory Marketing Tactics

Your Article Title Caught My Interest...

Hi Robert, I agree with the response you received from the Essence of Business valuations. I suspect that he hit the nail on the head when he said if your business is a start up business you?ll find it difficult to produce the proof required by most lending institutions to validate your business' valuation. However, I have been in your shoes and thought you might look into a resource that I found success with. I truly can sympathize with you. When I was beating pavement trying to get my own personal home-based business off the ground and establish it in a professional physical location, I almost lost hope. I kept hearing the same thing over and over again at every bank I tried. One of the biggest hurdles I faced as I tried to make my business a reality was how to convince a lending institution that my business would make enough money to repay the requested loan amount. I found it very difficult to convince any bank that my home-based business could be a tremendous success, if I could acquire the resources I so desperately needed to get things on stream. The fact remained that my efforts were fruitless. I ended up using an online lending resource, www.thesnaploan.com. Based on my experience with this site, I was able to successfully acquire a start up loan for $100,000. What?s even better is that I was able to apply online, and I got my approval pretty fast, about two weeks. It sounds like this website could be right up your alley.

By: Sidney Wahding on The Essence of Business Valuations

SBA Loan ...

Robert,

You may have one of my later posts that describes a little about the SBA 7A program.
http://www.allbusiness.com/buying-exiting-businesses/4967464-1.html

That is exactly the loan you should be after, since it doesn't require collateral, only that you prove that the business has enough cash flow to pay the loan and a living wage (plus 20% or so).

But it still can be difficult, because to prove cash flow typically you need a few years of tax returns, and you mentioned "start-up" so you may not have that. However, if you have this proof, you really don't need a valuation. The bank will help you figure how much you can afford (again, based on cash flow), and that is what you can get funding on.

There are a lot of lenders out there that will loan under the SBA 7a program, but here is one. www.blx.net. If you like, you can email Dan Eger at Deger@BLX.NET. He is in Sacramento, CA but I'll let him know he may get an email and he can refer you if he can't help you.

...

By: on The Essence of Business Valuations

I have read part ii ...

Part II answered some of the questions I had about part I, for example EBITDA. I now know what it stands for and do feel a bit enlightened with regards to that particular issue. However, I must say, the more we dive into this issue the more complicated and complex the terminologies become, not to mention the processes involve. For an individual in my situation just starting out, my revenue generated from the past 3 years could not possible be of comfort to any lending institution. I'm not sure how exactly to assess my future earnings, which will depend on the size of the actual business location I am able to acquire. Perhaps, when I read part III, I will attain a bit more clarity as well.

By: Robert Luedingh on The Essence of Business Valuations, Part II - Discretionary Earnings

Your Article Title Caught My Interest ...

I read your article. I can't say honestly that everything you wrote about rung out with clarity as far as I am concerned. However, I did gather some very interesting information from it. I also noticed that you have parts ii and iii to this article, which I also intend to read. The reason why your article's title caught my attention is because of my current business objectives. My situation is that I would like to change my home-based business, because I have outgrown the space. Right now, I need to locate a physical location for my business and acquire the proper equipment and safety gear, to conduct my classes. My problem is that I have no cash to pursue my business venture. What I am looking for is a small business start up loan, preferably an unsecured business loan. I?ve been having problems getting a loan, because I don?t have enough collateral. That's the part of my situation that I consider relevant to your business valuation article. I find the whole process of business valuation daunting that may probably explain my consistent failure at acquiring a small business loan. In the mean time, how should I approach my business' valuation in this case?

By: Robert Luedingh on The Essence of Business Valuations

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