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How to Sell Your Business
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Article 3: Who Will Evaluate Your Business?
Selling a business is an emotional experience. After all, you’ve invested years and maybe decades worth of your time and tears into this commercial enterprise. It’s obvious to you that your business is worth a fortune. You expect a buyer to pay just that, right?
Of course, after some sober reflection you realize that emotional value and cash value may not be equivalent. Indeed, prospective buyers will likely possess a more critical view of the value of your business. So who decides what your business is actually worth?
Part of the answer lies at the bargaining table. But before any jawboning can begin, there has to be some kind of independent valuation – often more than one – to serve as a basis for talk. That’s where an independent appraiser comes in.
“You will want to get a professional appraisal done,” says Mark DiQuattro, a business valuation analyst in Belleville, N.J.
An appraisal is often conducted by a certified public accountant (CPA) with a certified valuation analyst credential (CVA) from the National Association of Certified Valuation Analysts (NACVA). Another accrediting organization is the Institute of Business Appraisers.
A valuation often costs from $20,000 to $25,000 for a small business. Valuations commonly include a cash flow analysis and an assessment of market conditions.
Any valuation will depend for its accuracy on the existence of what are called “audited financials.” This term refers to an in-depth investigation of your business records by an accountant, who will check to make sure your receivables are still collectable and that your assets are correctly valued, among other things. Audited financials make prospective buyers more secure in their assessment of your business.
A set of audited financials may run up to $40,000 for a small business.
“It breaks an entrepreneur’s heart to spend money on what does not seem to add value to the business,” acknowledges Rick Rickertsen, managing partner of Pine Creek Partners, a private equity firm based in Washington, D.C. “But audited financials really do add value. To get the price you want for your business, you need to provide the perception of as much robustness as possible.”
Audited financials do just that.
Remember: A prospective buyer may look at more than one professional valuation before coming up with an offer.
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