The first thing you need to know before launching yourself off down the ‘ready for sale’ path …
Is your business saleable and what is it worth on the open market. When did you last have a business appraisal or ‘ready for sale’ assessment’? Chances are that you have never had one. I believe it is something you should do annually.
One of my favourite sayings, when it comes to selling a business is “It’s not about turnover, it’s about leftover!” There is no point in turning over a million dollars a year if there is no profit. At the end of the day, a business is generally valued on net profit and not turnover (there are exceptions but too few to consider here). So how do you put a value on your business?
THE TWO MOST CRITICAL FACTORS
(1) Maintainable Net Profit of the business after add backs and adjustments for Non Recurring Expenditure
(2) The ROI (Return On Investment) percentage used in the calculation. The ROI is sometimes referred to as a “multiplier” of net profit because the result of applying the formula is exactly that!
Generally, most businesses under $1,000,000 will be valued to accommodate a return to a single owner operator unless it is already operating under management. When appraising a business under management the same criteria applies except a lower ROI percentage (higher multiplier) would be used against a lower net profit (to accommodate a manager’s salary package) resulting in a similar market value as the owner operator version.
So, always remember “It is not about turnover, it’s all about leftover!”
Does all this sound a little complicated? Well it can be if you haven’t been down this path before. That’s why it is a great idea to get a “business ready for sale” assessment conducted on your business annually. This includes a market appraisal but also gives the business owner a report on all the non-financial elements of the business which can affect the sell price and also the ease of sale.