Around the Web: A Week in Summary
A recent article from Inc. entitled “What Experts Say Small Business Buyers Need to Know for 2019” explains the factors impacting the price, profitability and financing of a business sale and what to look out for going forward in the currently favorable market.
- SBA Loans & Interest Rates – While SBA loans are more accessible than ever, experts warn that interest rates are projected to rise in 2019, cautioning those who are able to consider traditional loan terms which typically have lower interest rates than SBA.
- Baby Boomers – More than 70% of baby boomer-held businesses are expected to sell or change hands in the next 10 to 15 years. For the current buyer, this means that the influx of profitable businesses on the market is only the beginning.
- Low Unemployment – For a small business owner, a low unemployment rate means that there are less potential employees on the market. This could lead to difficulty in competing with the pay and benefits that larger companies offer.
The number of quality businesses that are entering the market is rising, subsequently so is buyer optimism. However, it is prudent to not allow heightened optimism cloud judgement and to continue to follow through on your due diligence as a buyer.
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A recent article from Divestopedia entitled “How Do I Attract a High Multiple for My Business? – The Sales Process” explains how the sales process impacts a company valuation.
While you cannot transform an average business into a high multiple business, there are a few guidelines you can follow to encourage a higher enterprise value at the closing date. The first of these guidelines is that the ideal time to sell is when there are positive trends in revenue and earnings. A positive trend means that there has been consistent growth over the past two years (keyword: consistent) and that there are future prospects on the horizon.
The second important factor in the sales process is who you’re selling to. It’s crucial to not only thoroughly screen your buyers, but to keep as many options open as long as possible. When there are multiple buyers interested, you have leverage as the seller.
The third and final piece affecting the end value of your business in the sales process is why you’re selling it. Who you choose to sell the business to and how long you remain after the sale is highly dependent upon this answer.
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A recent blog post from VR Business Brokers entitled “Normalized Earnings Tell You How Profitable a Company Really Is” explains the three main adjustments to normalize earnings and how they impact the valuation.
Adjustments to normalize earnings typically fall into three categories:
- Economic adjustments – These adjustments relate to items affected by a company’s accounting methods.
- Discretionary adjustments – These relate to items that are incurred or recorded at manager’s discretion such as salaries, wages and bonuses paid to owners and their family members.
- Nonrecurring adjustments – Typically, these adjustments are one-time income or expenses like lawsuits or settlements that aren’t expected to recur in the future.
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