If a small business owner wants to sell their company now or sometime within the next five years, an independent business valuation is an essential first step. If the time is now, then the appraisal serves as the basis for a potential deal structure. Should a transaction be further down the road, then the information provided in the valuation process allows the owner to properly position the firm to maximize financial return when the time comes.
A Neumann & Associates, a business broker based in Atlantic Highlands, New Jersey, requires that an independent third party market valuation be put in place prior to any engagement for sale. Says company president Achim Neumann: “Our 25 years of experience shows that the benefits to the small business owner are significant in terms of both time and money.”
Neumann & Associates will hold a seminar called “How to Value and Exit Your Business for Maximum Profit” Thursday, November 7, from 9:45 a.m. to 4 p.m. at the Hyatt Regency in Princeton. The event will offer advice and tools for selling a business. $35 for one person, $50 for two. www.neumannassociates.com/SE.cfm.
Why is a neutral party fair market appraisal so important? Among the benefits for the business owner:
The guessing game is eliminated. Even though some owners think they know what their business is worth, they are really only guessing or perhaps using incorrect industry rules of thumb. A multi-dimensional and accurate report of the firm’s worth to prospective buyers will ensure that no money is left on the table.
The need for a buyer valuation is eliminated. If a proper third-party valuation (as opposed to one done by the firm’s CPA or broker) is in place, then prospective buyers have no inclination to ask for one themselves. Any discussion of fair market value should be driven by the seller, not any potential buyer. An independent appraisal provides the buyer with a value justification and identifies the anticipated rate of return on their financial investment — problem solved.
Deal structure and market feedback is provided. The independent valuation lets the owners know exactly what to expect if they decide to market their business for sale. Every industry and business is unique, and therefore every business sale provides a distinct set of anticipated circumstances. A savvy business seller needs to be aware of these beforehand.
Value drivers are analyzed. The factors that are influencing a company’s value (both positively and negatively) are identified for the business owner. By knowing exactly where they stand relative to others in their industry (and to their own goals), a shrewd owner will be able to implement changes as part of an orchestrated strategy to improve value.
A faster deal closing is achieved. Since the independent valuation is accredited and recognized by the financial community (including the SBA), commercial financing is obtained in a quicker fashion and the seller gets to the closing table approximately two months faster that without one in place. Time is money — especially when a business is being sold.
“Since joining A Neumann & Associates in 2010, I have seen many small business owners take advantage of the valuation process to better position them for a proper exit” says Gary Herviou, the firm’s central New Jersey managing director. “Moreover, a smooth transaction is almost impossible without an independent appraisal in place before going to market.” An independent fair market valuation is confidential, cost-efficient, and not time-consuming for the small business owner. More importantly, it can be completed within 30 days and updated every 18 months at very little cost — a vital tool in measuring progress along the way.
Michael Gersten, northern New Jersey managing director for the company, makes the point clear. “If selling the business is a possibility, it’s incumbent on the owner to look at the big picture and get the cold hard facts regarding the salability of the company in advance.”
This valuation mindset can be summed up as follows: value now, plan ahead, and maximize return at closing. Well informed business owners will make effective decisions accordingly and reap the rewards upon exit from the business. The unprepared will have to take their chances and hope for the best.