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MiMfg Magazine July 2017
Thinking of Selling Your Business?
What You Need to Know
By: Eric Larson, CPA/ABV, ASA, CBA, CMA, CFE • Beene Garter LLP
The past few years have seen a flurry of
merger and acquisition (M&A) activity,
and that trend is expected to continue
with many baby boomers looking toward
retirement. When selling your business,
it is essential to assemble an experienced
team to help you through the process
and avoid costly mistakes. Starting with
a business valuation can help you spot
areas for operational improvement so
you can increase your company’s value
prior to putting it up for sale.
How Much is My
Business Worth?
Ultimately, the value of a business is
the amount a buyer is willing to pay for
it. But the starting point is a business
valuation to determine its economic
value. A qualified business valuation
professional can help with this process
using rigorous industry standards and
applying various approaches.
This can be an emotional process for
sellers, especially those who have invested
a lifetime building a company and
developing the relationships that have
made their business successful. Three
main methods are used to determine the
value of a business: the asset approach, the
income approach and the market approach.
“
Asset Approach
The asset approach is a mathematical
calculation that begins with the current
fair market value of assets and then
subtracts the fair market value of liabilities.
This is also called the cost approach, the
adjusted net asset value method, or the
adjusted book value method. Both tangible
and intangible assets should be included:
When selling your business,
it is essential to assemble an
experienced team to help you
through the process and avoid
costly mistakes. Starting with a
business valuation can help
you spot areas for operational
improvement so you can increase
your company’s value prior
to putting it up for sale.
”
it’s challenging to agree on the
numbers, the value of intangible
assets is often scrutinized during
negotiations and the due
diligence process.
• Tangible assets are physical assets
like machinery, buildings, land
and inventory. Income Approach
• Intangible assets are non-physical
assets including patents, trademarks,
copyrights, goodwill and brand.
Calculating their value is somewhat
subjective, so business owners may
overestimate their value while buyers
may question their worth. Because The income approach values a
business based on its potential future
cash flow. Common methods for this
calculation are the capitalization of
earnings method and the discounted
cash flow (DCF) method. Valuing your
business using the income approach
relies on using a number of assumptions
about the existing business and its
future cash flow potential.
Market Approach
The market approach determines
the value of a company based on the
sales of similar companies using either
public or private information. The
challenge is finding true “comparables,”
so many factors may need to be adjusted
to determine an accurate appraisal.
These may include the entity size,
profitability, growth and leverage.
Regardless of the valuation method
used, your valuation expert can help you
develop a practical action plan to focus
your energy where it will have the
largest return on investment so you can
maximize the value of your business
before moving forward with a sale.
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Eric Larson CPA/ABV, ASA, CBA,
CMA, CFE is a partner with Beene
Garter LLP. He can be reached at
[email protected] or
616-235-5200.
Beene Garter LLP is an MMA Associate Member.
Visit online: www.beenegarter.com.