(Today's post is from Alpena (@MarlonPowell on Twitter). In this post, she enlightens you on valuing and attempting to sell your business.)
Selling a business is a smart exit tactic for business owners. When a firm is not making any profit or there are no successors who want to carry on the business, then business owners plan to sell the company.
Tips to Sell Your Business
The following tips can help you sell your business successfully:
- Sell at the right time: One of the most common reasons for selling a business is that a business owner becomes ill or gets too old to run it. It will be immensely difficult for you to handle the additional tension of selling a company in those circumstances. Also, the prospective buyer will make use of your circumstances as leverage against you. Therefore, the correct time to sell your business is when you're healthy and have a successful business.
- Be clear about what you're selling: Prior to selling a business, you should evaluate what the assets of the business are and determine what you are selling. You should decide what physical assets you are selling and what other assets you need to sell. Selling a business often involves assets like goodwill, trademarks or client lists, and physical assets. However, the value of these assets will depend on their quality.
- Determine your business value: Your business is worth as much as it will obtain in the marketplace. The trick is to determine the right selling price of the business. There are different business valuation methods such as asset-based approaches, earning value approaches and market value approaches. Apart from these methods, economic trends and the current market should also be taken into account.
- Get professional help while selling a business: You can hire a professional valuator to find out what your business is worth. You can also hire a commercial realtor or business broker to help you in finding and dealing with potential purchasers of your business. A lawyer can draw up the documents needed to sell your business.
Business valuation is the process of determining the value of a business. As it has been already said, there are 3 types of business valuation methods - asset-based approaches, earning value approaches and market value approaches.
- Asset-based approaches: This business valuation method sums up all the investments in the business. Asset-based approach can be done on a going concern or on a liquidation basis. Going concern asset-based approaches records the business total value of its assets and deducts the value of its liabilities. A liquidation asset-based approach figure out the total cash that would be obtained if all assets were sold and liabilities paid off.
- Market value approaches: This business valuation method tries to find out the value of your business by comparing your business to similar businesses that have been sold recently.
- Earning value approaches: This method is based on the idea that a business's true value lies in its capacity to generate wealth in the future. The most common method considered is the Capitalizing Past Earning method.
The earning value approach is the most well known business valuation method. However, a combination of business valuation methods will be the best way to put a selling price.
Alpena is associated with many business & finance sites making regular contributions and providing advice to them. Not only has she made notable contributions to the industry, she has also written articles for different business & finance websites. Please follow her on Twitter.