Like any small business owner, you want to know how much your business is worth. Once you receive an estimate, the next question may be, “how was this calculated?” A multiple is a number you would use when calculating the value of a business.
Every business owner wants to know “how much is my business worth?” Let’s be honest, you built your business and it is probably a big part of your financial net worth and maybe selling it is key to your retirement planning.
In a study conducted by Massachusetts Mutual Life Insurance Company (MassMutual), 70% of entrepreneurs think about the value of their business on a regular basis. However, they don’t always have precise knowledge of what the actual business value is.
Getting a valuation for your business that is lower than what you expected can come as an unwelcome surprise. It can be frustrating if you expected something higher as part of your retirement planning.
Preparing to sell your business can be an emotional rollercoaster ride, and the last thing you may consider during this time is selling your business to a competitor.
In the spring of 2020, I heard a story on the radio about baby boomers that want to retire yet are struggling with exiting their small businesses. As an entrepreneur, this struck me as odd – how can this be an issue? A few hours later I was searching online for more information and was shocked at the magnitude of the issue.
Ideally, as an owner, you want to ensure your business is not undervalued when the time comes to exit the business while a buyer doesn’t want to pay an inflated price. To achieve this, comparables are an excellent way to estimate the fair market value of your business.
What happens if you are struggling to sell your small business? What if a buyer is seeking some of your key assets but is not interested in the entire business? Maybe you need to expedite the process of transitioning out of the business?
Due diligence is the process where the buyer has an unveiled look at the business you’re selling to investigate it from the inside so that they can make an objective decision about your business, and make a buying decision or not.
Exiting a small business will likely include preparing financial statements for potential buyers as well as obtaining a business or net asset valuation (ExitGuide Pro includes a valuation). If you need a refresher on some of the terminologies or you do not “speak finance” ExitGuide has summarized many key terms below in what we hope is a clear and practical explanation.