How can you ensure your business is properly valued during exit?

Best valuations always come when the businesses are not proactively looking to sell. I got a couple of quite good offers & and I passed them as I felt it was too soon to exit. Here are a few things that might help to exit at a good valuation - - Maintain genuine relationships with people in a similar industry. - Build an EBIDTA-positive business (If not now, be clear on the timelines) - Most importantly, as YC says, 'Make something that people really want' - Keep your books clean (Matters a lot when you are exiting. Definitely can impact the valuation too) Happy building.

Having a diligent/unique method of capturing all your business data, how you drive insights, make decisions and prioritise KPIs. This captured from inception to your exit will ensure your know-how is valued and ‘secret sauce’ is transferable to the new owners.

Paint a Picture, Not a Spreadsheet. Numbers matter, but beyond EBITDA and growth charts, paint a vivid picture of your business's potential. Who are your passionate customers? What problem do you solve in a way that leaves them singing your praises?

In my oppinion, despite of the traditional valuation calculation methods, the valuation process differs substantially, accordingly to the type of business, stage of the company (green field vs brownfield), sector, location, and many other factors. To ensure that your business is properly valued, you should ensure that all sensitive and relevant information will be properly disposed to investors and clearly understood by them. Another aspect is to understand if the assumptions considered by investors are the most appropriate for your specific business and, if not, try to influence the other party to adjust the assumptions properly. Last but not least, the M&A must be carried out with full ethic, integrity and transparency.

I think an often overlooked first step is to have a valuation completed by someone who knows the market well. If you are going to sell a restaurant, talk to someone who sells a lot or restaurants, if you are going to sell a manufacturing facility, talk to someone who sells a lot of manufacturing facilities. Assuming what the market finds value in is a bad approach.

Ha! Startups hardly ever get to choose the 'right' valuation method. The potential acquirers, assuming they are large vendors, have their own valuation models, and they probably won't even share the details of their models with you. You need to have a business that lots of others really, really, want to buy in order to choose the valuation method, otherwise it is thrust upon you and you either sell your business to that vendor, or you do not.

Selecting the appropriate valuation method is crucial to guaranteeing your business's accurate valuation upon exit. A business can be valued using a variety of techniques, including market-based, income-based, asset-based, and discounted cash flow. Every approach has benefits and drawbacks that vary based on the nature, scale, and sector of your company. The valuation technique you select should take into account your exit strategy, financial position, and business objectives. For a precise and impartial assessment of the value of your company, you should also speak with an accountant or a qualified valuer.

Your business's value is a two sided coin. One side is your ability to create value and therefore make money. The other side is determined by the purchasing, acquiring party. 1. Build a killer business and have a vision. 2. !Choose the right buyer!

Depending on your negotiation power/position, you can choose the method that leads to the highest valuation. However, it’s common practice to find the two methods (out of three) that lead to relatively similar outcomes, and base the negotiations on (one of) those.

Actually it is not true (or misleading) that "each method has its pros and cons". If you are selling your business (especially if it is *not* a startup) then you want to stay away from from an asset-based valuation as it is likely going to give you the least amount of return. In fact, the other party will likely try to insist on the asset method, in part because that would ensure them of the least loss in case of liquidation. The income approach is likely to give you the best value (unless, of course, the business is not profitable). On the other hand, the market approach may be the "fairest" but finding a comparable business is likely challenging (and this is where startups have a particular problem).

Any business's backbone is its financial statements, which provide a clear view of?its financial condition. Maintaining GAAP assures accuracy and reliability. An additional element of trust is added by having them reviewed by an independent accountant. Gaining the trust of potential consumers is more important than just focusing on numbers.

Preparing your financial statements is critical. If your financials are a mess, chances are your business is a mess! Make sure they are timely, complete, and transparent. More importantly, your financials are retrospective. They represent the following effects of all of your marketing, sales, and operational decisions, So make sure those decisions are clear, supported by data, and and represent a positive future for the business.

Clearly articulate your business's competitive advantages like proprietary tech, customer loyalty, market position, patients, and barriers of entry. Highlight growth potential and scalability, including market expansion and operational scaling. Demonstrate potential for cost reduction and efficiency gains. Agree with buyers on realistic future projections; consider earn-outs or performance-based terms in the sale agreement, making part of the sale price contingent on future achievements.

I have worked on many small business transactions where the deal fell through due to poor financial statements. You must keep accurate and current financial statements separate from all other businesses and personal records to correctly reflect the business being sold. Most private small businesses will not keep their financial statements on a GAAP basis, but rather a tax basis. Make sure all adjustments for each month or year have been made to reflect your tax returns as reported before providing to a buyer. Having accurate and trustworthy financial statements is the most important component of a successful and optimized exit for your business.

Valuation is strictly about financials. Yes, the team is important. Yes, the product's future is important. But your financials are the most quantifiable data. Organize in advance.

Negotiating requires a level playing field between the buyer and seller. You can only negotiate when you have a few bargaining chips in your hand. Some ways to do this: 1) Get multiple interested buyers to the table. It can also be a key way of discovering what your company is truly worth. 2) Understand what the buyer values in your company. It could be the product/ brand/ technology/ team. Then you can put a price on it. 3) Get your financials ready and valuations done beforehand. It gives you a clear picture of what your negotiation ballpark is. 4) Do your homework on what other companies in your space are valued at. 5) Set boundary conditions for walking away. There is always a price below which you will not exit.

At the end of the day it is strictly between buyer and seller. Value is in the eye of the buyer just like “beauty is in the eye of the beholder". As a seller you will not get more than what you ask for. If you do not ask, you will anyways will not get it. You need to put right value to the business so that you do not to leave money on the table at the same time it should not scare potential buyers. You need to start with higher value so as to have buffer in favour of your side. If you are able to convince the buyer that the value created is much more than price he is paying, he will bite the bullet!

It’s also crucial to assess the strategic alignment between your business and potential buyers. Selling to a buyer who shares your business vision and values can lead to better post-exit outcomes for your brand, your team, and your customers. It can also facilitate a smoother transition and integration process. I’ve found that a buyer aligned with my business’s ethos was willing to offer more favorable terms, respecting the legacy and the workforce behind the brand.

When negotiating, know what your business is good at and where it might have challenges. Be ready to talk about the things that make your business valuable and explain why you think it’s worth a certain amount. Understand market trends and show how well your business is doing financially. This way, you negotiate with confidence, defending your business’s value with a clear understanding of its strengths and by pointing out how it’s performing in the market.

Both parties should have high respect of doing the due diligence and be ready for that. More detailed the financial presentation, more trust is obtained. Not all businesses are going to be shiny with exponential growth. However, there has to be measurable asset that can bring value to the buyer. Having a mindset of "what's in it for them?", should help you negotiate with confidence.

As I researched my book, How to Grow Your Business Like a Weed, one thing really stood out with regard to building value in a business—having a recorded and well-honed process. Financial advisors told me they have to speak with business owner clients about this all the time. They think they're in for a grand liquidity event, and the advisors have the unpleasant duty of explaining that, if they don't have a well-documented, well-honed process, they haven't haven't built a business, just a job. It might be their dream job, but you can't sell a job.

The correct way to value your business is how you would like to value yourself. The best valuation for business comes from inner instinct and always the first number that you would like will always strike when you think about the business valuation. This then needs to be worked out in reverse manner to collect proofs of validation of that valuation.

Don't forget to negotiate a VP position, a salary, and executive travel privileges after the acquisition. It is good to fly business class after years of startup frugality... I'm just kidding.

Remember, if you don't like the value, don't sell. Until a price is agreed and a Buy/Sell agreement executed, the deal is not committed to. Remember, in due diligence, a buyer is going to find all of the problems and probably overemphasize some of them. The deal is not done until the due diligence is finished. Hire an experienced firm, like B2B CFO, to run your business through due diligence before acquisition to maximize your value.

Make sure you consider yourself as the buyer.. why you would want to buy your business? Whoever buys it does so to either make money from it or to take out a competitor. How is the buyer going to make money and how long will it take. What would you be doing in the next 2/3 years to boost revenue/profit? Why will your people stay with a new owner? How strong is your customer base? Do they buy your product/service or do they buy you?