As a business broker, I get asked a lot of questions, but the one I like the most is “What is my business worth?” While it’s a simple question, it’s not asked frequently enough.
For most business owners, the majority of their net worth is tied to their business. If you don’t know your business’s worth in real-time, you risk mismanaging your nest egg, retirement quality of life, and even your health. You need to know your worth for estate planning purposes as well as when it’s time to sell your business.
Most business owners I speak with have some idea of what their business may be worth based on reading trade magazines or sharing conversations at a trade show. But since there are so many factors involved, their fictional number is rarely close. Differences in size of revenue, geography, customer mix, employee tenure, and age of equipment all factor into the determination of value.
Written business appraisal vs. Opinion of value
There are two different ways to learn your companies worth, an opinion of value, or the more formal, written business appraisal.
A business appraisal is mostly used to satisfy a third party like a bank or buyer when they are obtaining financing. It’s an extensive process that involves a deep dive into the books and analysis of revenue cycles, cash flow, and risk. The process typically takes a couple of weeks depending on the size and complexity of the business. Unless there is an outside driving force, there is little reason for a business to incur this expense just for general informational purposes.
The less formal approach is the opinion of value. An active business broker that is familiar with your industry can have a look at your financials and give you their opinion of the business’s value. The process is much less structured and faster. While the case can be made for the more formal business appraisal is more accurate, seasoned business brokers can come very close because they understand merger and acquisition activity in the market better than anyone else.
“I recommend that businesses get an opinion of value no less than every 5 years and even more frequently if impending retirement is approaching.” – Bianca Evans, Senior Business Broker at Transworld Business Advisors
A written business appraisal comes with a higher level of scrutiny and can be the backbone of financial transactions concerning the business. Expect to pay between $5,000-$30,000. There can be a wide range due to the complexity of the business.
Conversely, an opinion of value brings a smaller price tag and potentially no charge if a business broker is representing the business for sale. The opinion of value usually more than suffices when information is needed for general business and estate planning purposes. It’s quicker and easier too, so it’s the solution most choose.
What if you don’t agree with the assessment?
Learning that your business is worth less than you thought can be painful to hear. However, the good news is, you can make some adjustments that can make a significant impact in a short amount of time. Here’s how to do it.
Keep clean books
Buyers want confidence that the information they see is accurate. Your financial records should tell a story. Sloppy bookkeeping means taking a big seller discount.
Don’t be overleveraged with one customer
If you have one customer that represents a large portion of your business, that makes a buyer nervous. Look for ways to sign other clients, so if you lose one, it won’t put the business in peril.
Have a team in place
If the business is dependent on the owner to deliver the product or service, look to make strategic hires that allow the business to function operationally without excessive owner input.
Don’t be overly dependent on one vendor
Just like it’s dangerous to have one disproportionally large client, the same can be said for vendors. If you rely on one vendor too heavily, you run the risk of a significant business disruption. Look for ways to diversify this risk with multiple vendors – even if you have to pay a little more.
If you feel like you need a complimentary valuation, call our office to learn more details and set up an appointment.
About Bianca Evans
Bianca Evans is an experienced business broker based in Jacksonville, Florida. She is a top producer in her field. She has made over 150 transactions since 2006 which makes her among the most seasoned in the area. She is a Certified Business Intermediary (CBI), a Certified M&A Professional (CM & AP), a Board Certified Intermediary (BCI) and has her B.S. degree from the University of Florida.
Other notable accolades and achievements:
•The Million Dollar Plus Award 2008, through 2019
•Dealmaker Award top 3% in the state for completed deals 2018
-Most dollars sold in North Florida in 2018
•Sold an array of industries including manufacturing, wholesale/distribution, service, retail, restaurants, professional offices, and more.
•24 years of Sales Experience
She maintains her professional networks by participating in a variety of associations including the International Business Brokers Association (IBBA) and the Business Brokers of Florida (BBF).
One interesting fact about Bianca is that she used to be a business owner herself! In fact, she has been on both sides of the transaction when she purchased and later sold that same business. She finds that perspective invaluable when relating to her clients and balancing the many details and emotions.
She is licensed in Georgia and Florida and speaks fluent German.
To reach Bianca, email: firstname.lastname@example.org or visit her website https://www.myfloridabusinessbroker.com/