Obtaining a Fair Market Price when Selling Your Business - VR Business Sales Blog

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Wednesday, April 15, 2009

Obtaining a Fair Market Price when Selling Your Business

JoAnn Lombardi
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Business owners face a myriad of challenges on a daily basis. One challenge that no owner wants to grapple with is financial distress. If you’ve struggled with such problems as declining profits, rising costs, fierce competition with no sign that the situation will improve, selling may be the best solution. There are steps that you can take to help maximize your business’ value and get a relatively fair sale price.  
Valuating Your Business  
It’s never an easy decision to sell your company between the time and emotional investments alone. However, once you determine that selling is your best option, begin the process by making a hard-line assessment.  
You need to find out what your business is worth, which you can do through one of our VR business intermediaries. A valuation can give you a basis for negotiating the sales price and terms with potential buyers. In addition, we will review your financial statements and determine the liquidation values for assets such as real estate and equipment.  
We also assess the value of your sales volume and determine whether it might be attractive to another company. Take note that your intangible assets such as people, knowledge and intellectual property is just as important as tangible property that can have significant value such as recognized brands, copyrights, trademarks, proprietary customer or client mailing lists, and long-term contracts. Just remember that the value placed on intangible property is likely to be closely scrutinized by potential buyers.  
Once you understand your company’s market position, financial status, strengths and weaknesses, you’ll have some idea of what you can expect from a sale.  
Highlighting to the Buyer Your Business’ Appeal  
You’re going to have differences between finding the value in the sale of a distressed company over one that’s stronger and more profitable. Buyers that are not just looking to liquidate a business’ assets will want to see potential for improvement and easy solutions to internal problems.  
Here are some qualities that buyers look for:  
Sales volume potential
Buyers will see factors such as a loyal customer base and complimentary products and services as very appealing. Buyers often seek opportunities to cross-sell with their current product lineup.  
For example, if your company manufactures heating and cooling systems and a potential buyer is in the business of selling, installing and servicing these types of systems; acquiring your line of merchandise could help them strengthen existing customer relationships and cut out competition.  
Potential buyers will find value in a transferable long-term lease in a good location for it can alleviate the risk of rent inflation. They will also find interest in acquiring unused facilities and equipment that can be repaired or upgraded and used to increase productivity and generate new business.  
Buyers look for opportunities to maximize under-used talent by restructuring job roles and placing them in the right positions. They will also look to see if existing management and company operators will be open to a change in ownership as that can play in a hand in policy changes for example. In their efforts to increase productivity, potential buyers might also eliminate marginal performers or replace overcompensated employees.  
Finally, growth potential won’t necessarily garner a higher sales price with a distressed company, but it will make the difference regarding whether buyers are interested.  
Positioning for the Sale  
Because selling a distressed company can be a complex and delicate operation, we here at VR can give you sound advice from the moment that you want to begin the process. We have experience in selling financially-troubled companies that can help you improve your competitive position and final sales price. We have a large database of potential buyers that are interested in the kind of opportunity that your company offers. Plus, we can help you devise a strategic plan to identify such buyers.  
Allowing VR to handle the difficult work of selling also can free up your time to continue managing your company’s day-to-day operations — including maintaining regular communication with lenders and investors. Communication with major stakeholders is critical at this stage between pacifying their concerns regarding the future of their investment and essentially, obtaining their approval to selling the business.


Response to: Obtaining a Fair Market Price when Selling Your Business
Edward Longbottom says
How can I obtain further information about selling my business in Chicago?

Response to: Obtaining a Fair Market Price when Selling Your Business
Henry Ducet says
The issue that I am having right now regarding a business that I am looking to buy is that current management is hesitant about the policies that I am looking to change. How can I get around this when the deal does close?

Response to: Obtaining a Fair Market Price when Selling Your Business
Floyd Merrit says
My landlord is willing to transfer the name on the lease of the property that I am renting for my business that I am trying to sell. What if the buyer wants to go elsewhere, how can I persuade him to stay?

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