Can I Determine the Market Value of my Business Before Going to Market?

January 16th, 2018

Let’s face it – selling a business should not be taken lightly. More often than not, owners respond positively to an anonymous inquiry they receive from a potential buyer that contacts them directly to determine if they’re interested in selling their business. The buyer, who has not been vetted for financial ability, may not know any more about your business than its name and that it performs collection services. Because your business is privately owned, the potential buyer does not know anything about your business that will help them determine whether they’re truly interested in acquiring it, or the price they will be willing to pay for it. If you initially ask them about pricing, they will give you a broad answer that doesn’t apply to your specific business. They may proclaim, “We typically pay 4-5 times earnings for service businesses.”

Let’s break that sentence down:

  1. Typically – Does the buyer that contacted you acquire enough businesses each year that they can confidentially and accurately say they have a typical approach to pricing every business? Also, the person contacting you, is he or she directly involved in acquiring your business, or is that person a recent MBA graduate who has to work the phones finding prospects for the partners to latch on to?
  2. 4-5 times earnings – Will that be 4-5 times today’s earnings? Last calendar year’s earnings? What is their timeframe for earnings? Also, how will they define earnings? Is that pre-tax operating income, or will they normalize your business’s income to reflect one-time and excess operating expenses?
  3. Service businesses – Does the buyer that contacted you directly really understand the services that your business provides? They may be looking for a service business with recurring revenues and long-term client contracts. These are not typical attributes of an accounts receivable management (ARM) company.

Responding to an anonymous buyer is risky, time consuming, and potentially very costly. Before you respond to the next inquiry from an unknown buyer and potentially turn your business upside down, know there is now a service that provides you with a thorough understanding of your company’s value before you respond.

Late last year, Kaulkin Ginsberg Company, in conjunction with its sister company Topline Valuation Group, added the Strategic Valuation Assessment (SVA), a new service designed uniquely for owners and investors of ARM companies. SVAs provide owners with a thorough understanding of value relative to transaction structures and current market conditions, and, unlike formal valuations, is a more strategic tool, used to aid in business discussions and planning. The report will:

  1. Breakdown your company’s financial performance in the same way that buyers will look at your business
  2. Offer a detailed explanation of your company’s value in today’s market
  3. Provide an extensive overview of the ARM industry as well as a synopsis of your company’s specific line(s) of business
  4. Explain the economic impact on your company’s value – a critical driver in any market
  5. Offer recommendations on ways to increase the value of your business

If you are planning to grow or sell your business over the next few years, or simply want to understand the value of your enterprise to compensate executives or set budgets, then requesting a SVA could be one of the most valuable strategic decisions you make. Click here to schedule a call with one of our experienced advisors.

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