After running your business for decades, there is no doubt that you know it inside out. That is the case with many businesspersons who, however, cannot give you a concrete answer when you ask them about the value of their businesses. To sell business, you must determine its value first because it will form the basis of the negotiations that business brokers will carry out on your behalf. Here is a look at why business valuation is an important exercise when selling a small business.
A buyer and seller will all view a business differently because they will use varying metrics in its valuation. Besides, each will be biased in the exercise since the seller will want to portray it as highly valuable so as to get the maximum asking price possible while the buyer will diminish its value in an effort to pay the least possible amount. A third party valuation by business brokers is essential in such an instance since it will give the true worth of such a firm.
Ask any seller what his asking price is, and the response you receive will be vague if a valuation by an expert is absent. He may, for instance, inform you that his price is based on what a potential buyer is willing to offer. That is a wrong approach to selling a business or setting the price for it since there is nothing concrete that may be considered when a buyer comes up with a certain price. A business valuation is, consequently, imperative when setting the price of a firm. Know more about business valuation in https://en.wikipedia.org/wiki/Business_value.
With a valuation figure in existence, you will give the buyer the opportunity to seek funding for the acquisition. An operating business is costly, and a buyer may not have all the cash present. A professional valuation will guide the financial institution that the buyer may approach as to how the cash is going to be used and the type of security it will receive in return.
You will look professional if you have a business valuation ready by the time negotiations commence. The reason is that buyers will take you seriously if they realize that you have taken this important step beforehand. If the valuation exercise has been carried out by reputable business advisors, it will be another plus point for you.
Arming yourself with business valuation information saves everyone involved time. Most investors have little time to spare and probably have numerous other companies to consider. Why would such a person wait for a valuation to be carried out whereas there are other businesses on sale that have such details ready and waiting for them? So, do yourself a favor and get your business valued if you wish to get a fast buyer.