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Should I Do a Business Valuation Now or When I’m Ready to Sell?

Posted by Andrew McSwain in Articles

What Do I Need to Know Before Conducting A Business Valuation? 

As the seller of a website, e-commerce company or other online business, you recognize the potential that a valuation has to influence prospective buyers and to reaching out to your business broker for more information. Identifying an appropriate valuation is the key before listing your company for sale. In fact, it’s a process you should be very familiar with after consulting directly with your business broker.

There are several things that you need to consider before conducting a business valuation. If you have been successfully running a company for a long period of time, there are probably systems, processes, and tips you have in place that lead you to believe that your company is indeed valuable enough to be listed for sale.

Doing your own due diligence and gathering financial information can help you to prepare for your initial conversation with a website broker. Your website broker will then explain his or her steps of the process to you so that you know what to anticipate from the moment that your business is valued all the way through to the point at which it is receiving offers to purchase and prospective buyers are engaged in the due diligence process. The more work you do prior to listing your company for sale or even getting an official business valuation, the easier it will be to list your company for sale at a high multiple. First of all, remember that value is relative. Your business is unique and this means that your value and the structure of the company are too. If your earnings are below industry average, but your cash flow is strong, you need to be aware of how this could impact your valuation. There are other potential unique aspects of your online company such as whether or not you have intellectual property ownership of patents, a loyal customer base or other valuable and tangible assets. The process of incorporating these into a business valuation is complicated because it is influenced by factors that a seller doesn’t have control over, like the economy or industry forecast. The second thing to remember before conducting a business valuation that it is to your benefit to get started earlier rather than later. A business valuation should ideally be conducted years before a sale, especially if you are getting a valuation for the purposes of trying to improve your cash flow or earnings. Both of these concepts will help you to raise the asking price of your company, so therefore, a business valuation does not always mean that you are immediately interested in making a sale. You might get a business valuation now to learn more about what you can improve to make your business more appealing to buyers and then another one closer to the time of sale.

A prospective buyer will want to see at least the last three years of financial statements before moving forward with the sale, so it’s a good idea to consider a business valuation up to four years before a sale if you have the goal of improving value prior to listing it.

Finally, make sure to do your homework in regard to valuation. Different methods may be preferred in different industries and your business broker should be helpful in explaining to you what’s required and what you can anticipate. Make sure that you employ professionals, such as business valuation specialists before moving forward with any sale.

An appraiser who is highly experienced in the field should be used to make sure that you have avoided many of the most common mistakes people make in the business selling process.