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Selling a Business – Step 1

December 16, 2016

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The first step in selling a business is determining a valuation range for the company. Before starting the process of selling a company or business, the owner needs to determine a reasonable range of value(s) that they are willing to sell their business for.

That being said, “reasonable” can mean very different things from the seller’s perspective compared to that of the buyer’s. Therefore, the range of value(s) determined should be both acceptable to the seller as well as realistic given the prevailing market and industry conditions at the time of the proposed sale.

Although some business owners prefer to have a valuation done by way of a valuation report prior to the sale, the owner should be cognizant that the transaction price on closing of the sale will differ from the value determined in the valuation. This difference is due to a large number of varying underlying factors, including the negotiating strengths of the buyer and the seller, the differing levels of motivation to complete the transaction, as well as buyer perceived synergies that are typically difficult to quantify in a valuation report.

Regardless of whether the business owner decides to have a formal valuation performed prior to selling the business, he or she should still develop a suitable valuation range that is based on more than just a gut feeling. One way to achieve this is by comparing the value to what a friend sold their business for, given the uniqueness of each company and business. This can also apply to companies that operate in the same industry or market space.

As advisors, we typically consult and work with our clients to determine a reasonable range of value(s) based on the company’s competitive strengths and weaknesses, along with various valuation techniques, in order to help our clients develop a better sense of what their business can be potentially valued at. From that point, we work with our clients and begin assembling the sell team.

Stay tuned over the next few months, as each week focuses on the next vital step in selling a business. To learn more about selling a business, visit last week’s blog or contact one of our Advisors.

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