So, you have decided to sell or buy an existing business, but you don’t know how to evaluate it? If the answer is affirmative, you should know that there is no universal valuation method. Actually, there are a few valuations methods that have proven to be effective and it’s up to you to select the one that is appropriate for your situation. Of course, you can always use a combination of methods in order to make sure that you are doing the right thing.
One of the most commonly used methods of valuation used for business for sale is to conduct thorough research of the current situation on the market and the industry. Assessing a business usually depends on the industry where the business belongs as well as the current marketplace value of businesses that have similar characteristics. There is no need to play the guessing game when there is already information available for other businesses. Use the Bureau of Statistics or some other relevant sources to analyze statistical data. Don’t forget that you should compare businesses with similar characteristics within the same industry.
Next, you can use the ROI method. In case you didn’t know, ROI stands for Return on Investment. The ROI, in this case, is calculated by dividing the net annual profit with the selling price and multiplying it by 100. An ROI of around 50% is acceptable for most sellers and buyers. This is a deal in which both sides will be happy – in other words, it would be a win-win situation.
In some cases, it’s the smartest idea to rely on the business’ assets to find the real value of a business. While doing these calculations, you should include both physical assets and intangible assets like intellectual property, business goodwill and more. It is important to be precise and realistic when doing these activities.
So, in case you are trying to sell your business or you want to buy one, you can use one of these three methods to evaluate the business and find the real price. As a seller, you should always look for things that can increase the price of your business and as a buyer, you should be careful and check all the possible downsides of buying a certain business. It’s crucial to avoid overpriced businesses with no real perspective ahead of them.
3 Reasons Why You Need A Broker When Selling Your Business
Selling a business can be tricky. Mainly, if it is your first time, it can be a challenging affair. Though a buyer may exist in the market, you may lack the tactics to find them. Also, with the growth of internet connectivity fraudsters and scammers are posing as potential buyers and running online sites that appear professional.
As a newbie, it is hard to determine whether you are dealing with a real buyer or a scammer. Price can also be an obstacle that may delay your business for sale finding a customer. Probably, you do not know how to price your business without suffering a loss as well as overcharging the buyer. If you are facing these difficulties, you need to engage a broker. Here are three reasons why such a step is a good idea:
Brokers have adequate knowledge in business selling
When you want professionally-done financial reports, you engage an accountant and an auditor. If you are seeking to market your products successfully, you hire a marketing agency. The same case applies here. For you to sell your business without any challenges, you need to engage a person with extensive knowledge and experience on this task. A broker has such expertise as their work is finding buyers for businesses for sale. Also, they know the challenges in the market and how to overcome them. This way, engaging them ensures you sell the business easily and faster.
Brokers are professionals who earn a commission on each business sale. For this reason, they must ensure you get a better price so that they can receive a higher commission. Also, the brokers have ideas of the potential buyers who are willing to pay a higher amount. When it comes to negotiating the price, these professionals know what to put on the table as benchmarks. Hence, involving a broker assures you of a better price than when you sell the business by yourself.
Save on marketing cost
Nothing is hard like marketing a business for sale. You are aware of potential buyers in the marketplace. However, marketing the business to potential buyers can be a challenge due to several factors. First, you want to do it quietly to avoid a negative influence on your customers and two; you are not sure where to find credible buyers. Engaging a broker at this stage can be a good idea. The brokers will take over marketing and negotiating tasks. All that will be remaining is transferring the business properties and receiving payments.