Ready to Sell Your Business? Figuring Out the Worth

Ready to Sell Your Business? Figuring Out the Worth

August 22, 2019 0 By Kailee Schamberger


YOU’RE WATCHING IT’S YOUR MONEY AND TODAY
WE HAVE IN THE STUDIO CHARLIE COLE, WHO IS A CERTIFIED BUSINESS BROKER AND APPRAISER. AND YOU’VE HELPED PEOPLE BUY OR SELL MORE
THAN 150 BUSINESSES IN YOUR LIFETIME. THAT’S INCREDIBLE. AND SO WHAT’S ONE OF THE FIRST QUESTIONS PEOPLE
ASK WHEN THEY WANT TO GO SELL THE BUSINESS. THE EASIEST ONE OF ALL. WHAT IS IT WORTH? AND HOW DO YOU FIGURE THAT OUT? WELL THE BEST WAY IS AN APPRAISAL. YOU DON’T HAVE TO HAVE AN APPRAISAL TO SELL
YOUR BUSINESS BUT IT’S BENEFICIAL IF YOU DO. WHY IS THAT? WHY WOULD YOU REALLY WANT ONE? WELL IN AN APPRAISAL YOU’RE GONNA LEARN A
LOT OF THINGS ABOUT YOUR BUSINESS. FOR EXAMPLE, IS THE VALUE HIGH ENOUGH TO EXIT
RIGHT NOW. ANOTHER EXAMPLE IS, IT COULD ALSO UNCOVER
SOME DEFICIENCIES. PERHAPS SOME DOCUMENTS AREN’T IN ORDER OR
SOME RECORDS AREN’T IN ORDER. AN APPRAISAL WILL FIND THAT FOR YOU. AND MOST
IMPORTANTLY. ARE YOU READY TO GO AT THAT PRICE. AN APPRAISAL IS A DEFENSIBLE ESTIMATE OF VALUE,
AND WHEN YOU’RE SELLING AN APPRAISAL IS NOT ABOUT WHAT IT’S WORTH IN YOUR HANDS IT’S ABOUT
THE TRANSFERABLE VALUE. SO IT’S DIFFERENT THAN WHAT YOU THINK AND
THAT’S WHY YOU NEED TO GET ONE. THAT’S GOOD ADVICE. NOW YOU CAN DO BUSINESS APPRAISALS? DO YOU HAVE TO BE CERTIFIED? OR WHAT ABOUT A REAL ESTATE APPRAISER? CAN THEY DO THAT? WELL REAL ESTATE APPRAISERS ARE IN DIFFERENT
LINE OF WORK. YOU CAN YOU DON’T HAVE TO BE CERTIFIED TO
APPRAISE A BUSINESS. IT’S HELPFUL BUT A GOOD RESOURCE FOR YOUR
VIEWERS WILL BE THE SMALL BUSINESS ADMINISTRATION. THE SMALL BUSINESS ADMINISTRATION IN THEIR
SOP, THEIR PROCEDURES, THEY LIST WHO’S QUALIFIED TO WRITE ONE OF THOSE REPORTS AND THERE’S
QUITE A FEW OF THEM ACTUALLY. ALL RIGHT AND WHAT’S IN AN APPRAISAL? WHAT DO YOU GO THROUGH? WALK ME STEP BY STEP. SURE. THE FIRST THING A BUSINESS OWNER WANTS TO
DO IS TO DETERMINE WHAT ARE YOUR DISCRETIONARY EARNINGS. IN OTHER WORDS, IT’S GREAT TO KNOW WHAT YOUR
ASSETS ARE WORTH AND IT’S GREAT TO KNOW THE MARKET, AND THE INTEREST RATES, AND THE STOCK
MARKET BUT THE BUYERS AND THE LENDERS WANT TO KNOW WHAT DO YOU MAKE. IN OTHER WORDS WHAT IS THE TRUE BENEFIT OF
OWNERSHIP IN THE BUSINESS AND THAT IS DESCRIBED AS SELLER’S DISCRETIONARY EARNINGS. SELLER’S DISCRETIONARY EARNINGS ARE YOUR NET
PROFIT PLUS NON-CASH EXPENSE, SUCH AS AMORTIZATION, DEPRECIATION, INTEREST, OWNER SALARY, AND
OWNERS PERKS. IT’S SIMILAR TO EBITDA. IF YOU DEAL WITH LARGE COMPANIES YOU’LL HEAR
THEM TALK ABOUT EBITDA. IN SMALL BUSINESS ITS SELLERS DISCRETIONARY
EARNINGS. SO YOU DETERMINE THAT AND THAT
WILL HELP YOU DO THE APPRAISAL. AND WHAT TYPES OF APPRAISALS DO YOU DO FOR
BUSINESSES? WELL THERE ARE SEVERAL TYPES. YOU CAN DO A FULL APPRAISAL. THAT’S GOVERNED BY USPAP. YOU WRITE IT TO CERTAIN STANDARDS. (YOU DON’T) THOSE ARE TRADITIONALLY MORE EXPENSIVE
AND IF YOU’RE THINKING OF SELLING FIVE YEARS FROM NOW IT YOU MAY NOT WANT TO SPEND THE
MONEY. YOU COULD ALSO GET A CALCULATION REPORT. A CALCULATION REPORT IS A MUCH MORE CONDENSED
VERSION OF AN APPRAISAL BUT IT STILL GETS YOU CLOSE TO THE SAME AS A RESULT. YOU DON’T NORMALLY STUDY COMPETITION. YOU DON’T WANT TO KNOW WHAT WALL STREET, HOW
WALL STREET AFFECTS YOUR SMALL BUSINESS HERE. BUT THE OTHER METHOD IS CALLED A RULE OF THUMB. NOW YOU’VE GOT TO BE CAREFUL WITH RULES OF
THUMB BECAUSE, WHAT I TELL PEOPLE IS, YOU WANT TO, YOU DON’T WANT TO VALUE YOUR BUSINESS
WITH MATH A 10 YEAR OLD CAN DO IN THEIR HEAD. THAT’S DANGEROUS. BUT THEY’RE INEXPENSIVE IF NOT FREE. YOU CAN FIND THE INFORMATION EVERYWHERE AND
IT CAN BE HELPFUL FOR THE BUSINESS OWNER TO ESTABLISH A VALUE. WHEN IS IT APPROPRIATE TO DO AND APPRAISAL? I MEAN, IT SEEMS TO ME THAT IF YOU WANT TO
BE ABLE TO SELL AND YOU’RE LOOKING AT THE VALUE,
YOU WERE TALKING ABOUT THIS EARLIER, DOES THAT OFTEN GIVE THE BUSINESS OWNER A SET GOAL
TO WORK TOWARDS TO GET READY FOR SELLING SAY FIVE YEARS DOWN THE ROAD? SO WHERE WOULD YOU WANT TO DO ONE? WHEN IS IT BENEFICIAL? WELL WE RECOMMEND KEEPING THE COST DOWN IN
THE BEGINNING. IT’S BENEFICIAL THREE TO FIVE YEARS BEFORE
YOU WANT TO EXIT. YOU NEED TO KNOW BECAUSE YOUR EXIT PLANNING
IS GOING TO DICTATE, YOU KNOW, ARE YOU GOING TO WORK AFTER YOU SELL? ARE YOU GOING TO KEEP PART OF THE BUSINESS? ARE YOU GOING TO WORK FOR THE NEW OWNER? SO THREE TO FIVE YEARS IS A GOOD STARTING
POINT. WELL THANK YOU VERY MUCH FOR YOUR TIME AND
EXPERTISE REALLY APPRECIATE IT IF YOU WANT TO KNOW MORE ABOUT BUYING AND SELLING YOUR
BUSINESS OR GETTING AN APPRAISAL CONTACT CHARLIE COLE AT COLEPARTNERS.NET I’M DEBORAH URODA
FOR IT’S YOUR MONEY