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Why Choose a Third-Party Business Broker for Valuation?

Thinking of selling your Colorado business? Colorado boasts 563,917 small businesses that employ 991,542 people according to the annual Small Business Association’s Small Business Profiles for the States and Territories. Did you know that last year, a survey sponsored by Citizens Commercial Banking showed that in 2015 the prime reason medium-sized or “middle market” business sellers looked for help from an independent business brokerage professional was to find out how much their company is worth? (Middle Market M&A Outlook 2015).

There are several different reasons why the owner of a business should seek outside help in putting a price tag on the company they wish to sell. Most business owners are very intelligent and capable people when it comes to running a successful business. But most entrepreneurs will only sell one business during their working lives. So it’s understandable that you wouldn’t be an expert in something you’ve never done before.

Business brokers know several ways to value your business

Unless you’re in the business of selling businesses, a professional business broker knows more than you do about how to sell a Colorado business. A good broker can make or break a sale. However unique your think your business or situation is, an experienced broker has probably dealt with something similar—maybe even more than once. If you’re selling your business, you can use the broker’s experience to your advantage. Your business transition professional can advise you which business valuation approaches are right for you: asset-based, income-based or market-based. Your broker can answer the question, “how much is my Colorado business worth?”

Business brokers are company valuation experts

Working with outside expertise makes sense, when you consider that at the lower end of the scale, it could be that the founder/owner of the business is still running it day-to-day. If the business owner is now tasked with operating an enterprise worth $25 million, when does he or she have time to become an expert at the valuation process? When you are thinking of selling your Colorado business, and you still run it, you have to keep it running smoothly, not learn how to be a business broker. As the owner of a company, you don’t want to focus on the different valuation methods when you list your business for sale.  You want to keep your focus on continuing to build the value of your business. Distractions can be costly.

Your business broker doesn’t have emotional ties to your company

If you’ve invested most of your career turning your idea into a successful business, it’s understandable that you may have mixed feelings about selling your Colorado company. Those mixed feelings might mean it’s nearly impossible to really invest yourself in the process of marketing the business to potential buyers. You wouldn’t be the first business owner who accidentally chases away a buyer with an asking price that is far more than your company is worth, because you’re emotionally attached to it. Another reason it makes sense to work with unrelated parties like business brokers? Objectivity. Lenders and buyers demand cold, hard facts about a business for sale. A professional business broker doesn’t have the same “baggage” about the company as the people who built it from nothing.
If you’re struggling to put together an accurate valuation of your Middle Market firm, now may be the best time to contact a professional business broker to help you value and sell your Colorado business.

Buying a Business? Fire Safety Problems That Could Burn Down Business Valuations

When buying a business, keep in mind potential safety-related liabilities that could hamper a Future Earnings valuation

Using future earnings to calculate the company’s present value is tricky because no one can predict the future, and no one likes uncertainty: especially when very large sums of money are involved. That’s why it’s prudent to do a safety audit of a business before purchasing it.

“Liabilities” often refers to debt, or monies owed. However, a liability can also be a situation that exposes the owners of a company to legal problems such as lawsuits and legal judgments. Inadequate fire safety measures or buildings or equipment that are not to code could also be considered liabilities.

Outdated, faulty wiring, or an electrical supply that is not adequate for the needs of a modern facility is a fire hazard that could result in the loss of both a building and any inventory stored in it. Even worse, the combination of fire hazards and inadequate fire escapes, missing smoke detectors, non-functioning sprinklers or lack of fire extinguishers could actually cause the loss of life in a fire.

And part of due diligence when evaluating businesses for sale is to examine the company’s safety record and make sure that the buildings, wiring and fire safety issues are all up to snuff.

The business should, of course, have liability insurance that would pay out in the event of an accident. But if negligence is involved, years of litigation could destroy the value of a business.

Business brokers advise business buyers to avoid safety risks

There are several various methods for valuing a business when a seller decides to put it on the market. A business broker or appraiser can help determine which method is the most likely to come up with a good “market price” for a company. Here are a few of the general types of business valuations:

  • Market-based valuations (what are similar businesses selling for in the same general area?)
  • Asset-based valuation (what are the assets of the business worth?)
  • Earnings-based valuation (how much cash has the business earned historically?)

There are many other types of valuations, including the “excess earnings method,” which is a combination of earnings and assets.

One method of determining a company’s selling price is the Future Earnings valuation. This is a valuation method that is generally used by larger companies and investors when evaluating a smaller acquisition target. Small business owners find this method attractive because valuation methods based on future earnings can reflect well on the price for a business, when done by an expert business broker or appraiser. However, it’s important to take into account all of the potential liabilities.




Want to sell your Colorado business? Take these HR steps now to enhance your valuation.

If you’re considering a merger or acquisition, it’s never to soon to start reducing operating risks that could create red flags during a buyer’s due diligence process, reducing your company’s value. Reducing your operating risks is one side of the valuation coin. (Maximizing cash flow is the other.) The higher the risk, the lower your company’s value.

When it comes to your company’s human capital, here are several steps you can take now that will make your business more attractive to buyers:

  1. Make sure there’s a job description and employment agreement for every position in your company. Employees understand what is expected of them and under what conditions their job is to be performed, leading to fewer workplace conflicts that include the words “but that’s not my job.” Detailed job descriptions will also help you when it comes to hiring and compensation issues. Thoughtful employment agreements can help avoid (or resolve) disciplinary issues. All of which reduce risk for both your company and a potential suitor.
  2. Review your leadership team’s roles and responsibilities. (This includes the founder of the company). Make sure you know how each team member spends her time, and how each contributes to the company’s success. The buyer will want to see an organization chart, too. If you’ve been running the company “by the seat of your pants,” now is the time to systematize your management processes and professionalize your leadership team to help prove to the buyer that the company can continue to perform at the same level beyond the sale.
  3. Put a management retention plan in place. If your management team is one of your company’s best assets (and a major selling point), it only makes sense to help ensure that these key people will stick around after the sale closes. While compensation is an important element of such a plan, many top performers are equally motivated by clear expectations, regular performance reviews, sincere recognition and opportunities for advancement.
  4. Create a management succession plan that will help a buyer replace the owner or other members of the management team who will be leaving after the sale. Assess your key leadership team and upper management. What are their strengths and weaknesses? Where are the gaps in your management structure? Identify good candidates for internal promotion, and create a plan for training them into their new roles. Detailed job descriptions and employment contracts will help the new owner fill any vacancies that can’t be filled internally.

If you’re thinking of selling your Colorado business, it is never too soon to start building your company’s value by reducing your operating risks. And for many privately-held “middle market” companies in the Mountain States, improving the professionalism of your human resources function will pay dividends before, during and after the sale.

For more examples of how our clients have improved their business valuations in today’s M&A climate, contact a business broker who is an expert in Colorado business.

Increase Fire Safety Awareness among Your Staff

As an employer, you already have your hands full. From meeting with clients to managing your employees to formulating financial or marketing strategies—you surely are one busy person. But this does not give you an excuse to neglect or overlook other equally important matters such as fire safety. Fire safety in the workplace should be… Continue Reading