HOW TO VALUE A BUSINES IN CENTRAL FLORIDA

In order to sell your business, you must first understand the different methodologies used to value a business. Industry specifics, location, historic growth, and growth potential are a few factors that can add value beyond the fundamentals and calculations used to value a business.?Orlando, Tampa and Miami are regularly acknowledged as a few of the top cities to live and own a business.?Florida’s growth rate is currently one of the fastest in the country, often exceeding 1,000 people per week added to the population of cities like Orlando and Tampa.?These highly sought-after locations can increase the value of your business dramatically if you understand how to utilize them properly during the business valuation process.

A business valuation is more complicated than simply looking at the revenues and profits of the business. Incorporating the intangible factors into the value of a business can be difficult and is best handled by an expert. The reality is, conducting a thorough and accurate business valuation has many components, including the core math of the numbers, and the many intangible factors that affect those numbers.?

Most buyers focus on the same key elements of a business to determine how much they are willing to pay. Unfortunately, many business owners don’t understand all the elements involved in assessing a business and assigning a selling price. Utilizing a valuation expert who knows how to incorporate these essential elements helps business owners find and attract the strongest buyers and receive competitive offers on their business.

An experienced business advisor should consider both the art and science of valuing businesses. An advisor will help you collect the information needed to determine the value of your business and discuss how to present that value in a clear, confident manner The information below provides a few of the steps and information you should expect as you begin to value your business.

The Science of Business Valuation

The science of business valuation refers to the numbers and on-paper data that demonstrate your business’s financial health. In addition to the raw data, charts and diagrams that clearly showcase your business’s key performance indicators are crucial. That way, a prospective buyer understands the business’s current standing.

Some numbers your business advisor may focus on in your business valuation include:

Cash Flow: This refers to the amount of money coming in and going out of your business, a comparison between how much money is made from customers or clients, and how much is paid out to creditors. Income-based business valuation is just one way to assess and demonstrate your business’s value, but poor bookkeeping is one of the biggest deal breakers in any business valuation.

Comparatives & Industry Standards: Analyzes what similar businesses have sold for as a multiple of cash flow, EBITDA, gross profit, and/or sales in comparable industry sectors along with industry trends and insights.

Equipment: Have all equipment used in your business appraised to determine the fair market value of these vital assets. This information can also help a prospective buyer understand the quality of equipment you use in your business and whether they may need to invest in more up-to-date assets.

Inventory: You need to keep track of your inventory for business valuation, too. A buyer wants to see organized inventory systems in addition to a healthy inventory flow — not too much stock, but also not too little.

Operations: The size of your team, processes, productivity rates, and types of operational activities should be tracked so that prospective buyers understand what makes your business tick and how you get it done.?

Buyers are more likely to pay top dollar for businesses that can demonstrate their use of clear, regulated processes and are forthcoming with important financial information. A business advisor can help you establish these processes, start tracking vital data, and find data analysis methods that present your business’s financial status in a compelling way.?Often if your business is growing and improving, but missing some of these components, a good business advisor will work with you for years until you are positioned for a successful exit.

The Art of Business Valuation

The art of business valuation involves using more of the subjective and intangible assets of your business to emphasize the on-paper numbers that make a business’s value clear. You can use the following information to forecast your business’s growth potential and demonstrate its return on investment for prospective buyers:

Reputation in the industry: Buyers want to know who your competitors are and how you stack up. You’ll need to clearly define what makes your business different from those competitors, such as your unique niche or value prospect.

Transferability: This refers to how easy it will be for a new owner to take over. While you can establish processes that make the transition of ownership smoother for the buyer, the transferability of future cash flow is another important valuation concept to keep in mind. Buyers want to know that customers and clients will stick around after they take over.

Customer base: Being able to demonstrate an even distribution of low-value and high-value customers/clients shows that your business can better withstand changes. Losing one big client could negatively impact your business’s cash flow, which can make your business less appealing to buyers.?

Management team: Buyers look for a strong management team, especially senior management. They need experienced, skilled, and confident leaders that can keep the business running smoothly and can be trusted to make effective decisions that benefit the business.?

Patents and licenses: Often a business owns the rights to make certain products or have the potential to patent? Do you have pending patents? Do you license out your products as a revenue stream? Having documentation of current or pending patents and license agreements can improve your business’s value.?

A business advisor can help you identify the most compelling and relevant “art” factors of your business. Then, they can collect empirical data and anecdotal evidence that shows buyers the quality of your business and the potential it offers them.

A business valuation is the most important piece of financial information for your business, no matter if you’re selling soon or preparing your business for the future. Therefore, it’s vital to work with an advisor that knows how to value a business accurately and confidentially.??Be cautious of any broker or advisor that may inflate the valuation of your business to secure up-front fees.?Often, the best advisors take no up-front fees, keep your information completely confidential, and only get paid when you sell.

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