We help you assess what your business is worth and how you can increase the value before you sell. When a company is valued, it involves far more than looking at a financial statement. The Kansas SBDC looks at a variety of components, including the operation of the business, customers, comparable sales, the industry, and more.
We provide you with the assistance you need to maximize the value of your business, so you can exit on your terms. We work with you to determine the current value of your business and assess where you need to build value, enabling you to achieve your financial goals inside and outside of the business.
We help business owners who are interested in selling their business to internal or external buyers. By working with owners on how to make the most of their business value, we address their retirement or exit financial needs and plan for what happens after they sell. Our clients are often unsure of what steps to take to make a smooth transition so we help them plan for a future with which they can be comfortable. Our advising helps reduce the stress of the process.
The Capital Access Center (CAC), part of the Kansas Small Business Development Center (SBDC) and funded through the 2020 CARES Act, is a specialized consulting service to small business owners needing Capital (Loans, Lines of Credit, etc.). Those clients wishing to buy a business and needing capital may access the Center directly or via our office.
Valuing a business for a buy/sell agreement involves finding a price that is mutually acceptable to both the buyer and the seller. Naturally, the seller will want to ask as much as possible and the buyer will want to pay as little as possible. But no motivated seller wants to charge so much that a buyer will lose interest, and no motivated buyer wants to offer so little that they will lose the business to another potential buyer willing to pay more. A successful business valuation strikes a reasonable middle ground.
A reasonable, objective starting point for valuing a business for a buy/sell agreement is reviewing the profit and loss statements from the previous two years of business activity. Base your business sale price on the business' income from these two years combined. Adjust this figure if it includes any expenses that are specific to the existing ownership of the business, such as interest on business loans. This statement of business income should reflect the amount of money that the business brings in, separate from any financial encumbrances not directly related to its day to day operations.
The valuation of a business for a buy/sell agreement should also include a sum sufficient to cover the tangible assets that would trade hands as a result of the business sale. Prepare a list of equipment and assets which includes the original purchase price as well as the current value, adjusted for depreciation. If you have elected to depreciate a particular piece of equipment over a five year period and three years have elapsed, then value that item at forty percent of the amount you paid, because 40 percent of the depreciation period remains. If an item is fully depreciated, value it at 20 percent of the amount you originally paid.
After calculating a figure based on business income and tangible assets, adjust this amount to reflect any intangibles that might enhance the value of the business. If the company has a long term lease at below market value for the area where it is located, this makes it more valuable. If it has been continuously operating for an extended period of time, add to the assessed value to reflect this longevity. If the business has gotten consistent positive reviews, and has a great reputation and a loyal customer base, these considerations increase its worth as well.
Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.
[12:50] - When deciding on buying a micro-business, you have to be able to put your rationality aside to see what the future of that business could become. You have to be able to see how much additional revenue you could make for that business and then convince the founder it's worth selling to you.
[21:40] - There are a lot of reasons someone might want to sell their business. The important thing is you can't let the reason someone wants to sell their business to impact your evaluation of it. A common reason Ryan finds an owner might want to sell is their business isn't growing, and it's hugely deflating for the person who is working hard on it day and night.
[25:05] - There have been a couple of deals where Ryan ran into problems because he didn't have all the details before buying the company. Ryan gives us an example of a Shopify store they purchased, and another Shopify app called Cross-sell.
[28:25] - One of the real challenges with buying over micro-businesses is the potential technical debt you'll inherit and how that will impact how much of the product you'll need to rebuild completely.
[32:55] - Ryan now teaches other people to buy and sell microbusinesses via his course (MicroAcquisitions.com). He wanted to create the course to give back to the community. Over the years, Ryan has given out a lot of free advice, but from his experience, people value it a lot more when it's something they've paid for. So far, students who have taken the course have done 20 to 30 deals. 59ce067264