Often we are asked, what is a Business Broker and what services do business brokers provide?
Business brokers are intermediaries who consult with sellers and buyers and help facilitate the sale of a private business. Brokers typically work with small to medium-sized entities, and they work to match the right buyer with the right seller with the goal of a win-win transaction for both sides.
As a seasoned intermediary, Marc Able has successfully represented companies in a broad range of industries helping business owners achieve their desired exit strategy or growth initiative.
The first step to selling your business is determining what the business is worth. But, how do you determine the value of a business? Benchmark Business Brokers is here to guide you through the valuation process and identify the approach that is most suitable for you and your business.
How Much is My Business Worth?
To put it simply, a business is only worth as much as a buyer is willing to pay for it. When valuing your business, it’s important to take a step back and look at the bigger picture. It is not unusual for a business owner to be emotionally attached to his or her business. After all, it’s like your baby! You’ve built your business from the ground up and now it’s time to give it away – for a price.
Oftentimes this emotional connection leads to a valuation gap, in which a seller thinks his or her business is worth more than the buyer thinks it is worth. Therefore, we use the best method that fits our clients’ needs using three different approaches.
Tools for Valuation of a Company
To determine the value of your business and close a valuation gap, it is crucial that you receive a formal business valuation from a certified business appraiser. Numerous nationally recognized associations certify business appraisers such as American Society of Appraisers, National Association of Certified Valuators and Analysts, Institute of Business Appraisers, and International Society of Business Appraisers.
Business appraisers often look at your business’ cash flows, risks, and goodwill. Whether your cash flow is expressed as EBIT, EBITDA, Free Cash Flow, or Seller’s Discretionary Earnings (SDE), the appraiser will evaluate the amount of cash flow and the degree of risk associated with that cash flow. Ultimately, buyers are looking for businesses with high cash flows and low risk.
How to Calculate Business Value
Various approaches may be used when calculating the value of a business. When choosing which approach is best for you, one must consider the size and nature of the business.
- Asset Approach: The asset approach is the most common approach to valuing a business. The goal of this approach is to find the net asset value. To find business value, you’ll need to find the fair market value of assets less liabilities. Under this approach, sellers often use the asset accumulation method and capitalized excess earnings method.
- Market Approach: As the name implies, market approach to valuing a business, looks at the marketplace to determine value. This may include analyzing historical sales, industry trends, and more. To calculate the market value, business brokers and professional valuation appraisers have numerous databases and records. Under this approach, sellers often use the comparative transaction method.
- Income Approach: The income approach is based on the company’s ability to generate economic benefit, such as net cash flow. Under this approach, sellers often use the discounted cash flow method, capitalization of earnings method, and multiple of discretionary earning method.
Benchmark Business Brokers is not a certified business appraiser. However, for our clients we are able to provide a Broker’s Price Opinion (BPO) in helping the Seller to derive an Asking Price for their business or to support a Buyer in determining a businesses’ market value in the buying process and during a due diligence time period.
Whether you are a business owner ready to sell or expand or a Buyer wanting to acquire a business, contact us today to discover the services and opportunities with Benchmark Business Brokers.
“When it’s time to buy, sell or franchise a business, call the local professionals”