How Are Small Businesses Valued for Sale?
Historical Cash Flow Analysis and Seller Discretionary Earnings (SDE) When assessing the value of a small business, analyzing historical cash flow is a fundamental approach. This method provides buyers with insight into the company’s annual revenue generation and often justifies a premium purchase price for businesses with a proven track record of success. However, many […]
Other Key Factors in Valuing a Small Business for Sale
Understanding the Elements That Drive Business Valuation As the final part on this series of valuing a small business for sale, it is important to recognize additional factors that significantly influence buyer demand and final valuation. 1. Business Longevity and Track Record Buyers tend to favor well-established businesses with a proven track record. A longer […]
Seller Discretionary Earnings and Business Sales Price
Understanding Seller Discretionary Earnings (SDE) in Business Valuation Seller Discretionary Earnings (SDE) play a critical role in determining the fair market value of a small business. As a fundamental financial metric, SDE provides valuable insights into a company’s financial health and attractiveness to potential buyers. Additionally, the predictability of cash flow significantly influences valuation. Business […]
Business Consulting: The Importance of a Business Broker
When preparing your business for sale, it’s essential to engage key business advisors including a certified public accountant (CPA), attorney, and commercial bankers. However, there is one more integral advisor that many business owners often overlook: the business broker. Strategic Market Intelligence Business brokers provide invaluable insight into local market trends, comprehensive business sales data, […]
Buyer Financing – SBA Loan Structure
Overview SBA financing is the most common form of funding for owner-operators pursuing small business acquisitions. This government-backed program offers several advantages to buyers, including a lower down payment, longer repayment terms, and the ability to purchase a business without the need for significant personal or business collateral. From my experience, the 80-10-10 loan structure […]
Business Valuation – Key Value Drivers
Overview: There are countless methods to value a business. However, when it comes to small business sales, most transactions involve owner-operators much like the seller — individuals looking to step into the business and continue its operation. In these cases, there are four key factors that consistently drive business value: 1. Historical Business Cash Flow […]
Business Owner Strategy – Business Sale when Owning Commercial Real Estate
Business owners face unique complexities when selling their operations while simultaneously owning the underlying commercial real estate. Strategic preparation in three key areas can significantly enhance sale outcomes and buyer interest. 1. Market Rent Assessment and Adjustment Many business owners fail to adjust rental expenses in accordance with market inflation and property appreciation over time. […]
Business Sale Challenges with Multiple Owners
Many businesses have multiple owners, both active and passive. When life events lead partners to want or need to sell the business, the situation becomes complicated with multiple ownership interests. Each owner has unique timelines, expectations, and goals that must be aligned. Here are three strategies to address these challenges proactively. 1. Open Communication Establishing […]
Common Pitfalls in Selling a Business
When it comes to selling a business, many factors influence the outcome. But it all starts with buyer demand and whether your business meets buyer expectations. If you’re considering a sale, it’s important to address several key areas in advance to improve your odds of a successful, higher-value transaction. Financial Performance Buyers focus heavily on […]
How Location Impacts Business Value from an Acquirer’s Perspective
Location plays a meaningful role in how buyers assess risk, growth potential, and operational efficiency during an acquisition. While financial performance drives enterprise value, location can significantly influence a buyer’s willingness to pay a premium or apply a discount to the final valuation. Below are the primary ways location affects value from the acquirer’s viewpoint: […]