When determining the final selling price of a business, profitability is just one piece of the puzzle. Factors such as the visibility of your business to potential buyers, the prices of comparable businesses, and the availability of financing options all play a crucial role in establishing its value. Having a skilled business broker can greatly influence these elements, providing support and substantiation for your asking price. By considering these aspects, you can ensure a more competitive valuation for your business.

Generally, businesses with under $5M in revenue are valued by using an industry multiple times the seller's discretionary earnings.  The industry multiple varies and is largely based on comparable recent sales.  For larger middle market businesses, offers are generally solicited from investment groups or industry competitors who independently value a business based on EBITDA, their ROI criteria, and their desire to expand or broaden their product/service offering.

The best way to sell a business quickly and for the best possible price is to promote it broadly before a wide spectrum of potential buyers. Cabot Business Brokers achieves this for its clients using numerous channels: internet advertising on leading websites, email notifications to a proprietary database of over 2,000 buyers, advertising on our website, contacting potential strategic industry buyers, and networking throughout our brokerage industry.

The best business sales occur when buyers are found that not only are financially qualified, but also have the specific industry knowledge and experience to understand the business they are acquiring. For most businesses this process of identifying the right buyer generally takes from six to twelve months. Larger businesses that retain senior management and are less dependent on the new owner's industry knowledge and contacts tend to have shorter sales cycles.

There are two overriding reasons why sellers should develop an inclusive exit plan. First, an in-depth review of a business can yield a number of issues that if addressed will increase the value and desirability to a broader pool of potential buyers. Secondly, there are numerous issues that can be anticipated in the due diligence process, such as a review of lease restrictions, financial records, etc., that if properly addressed before the business is listed, will yield a smoother business review and sale.

Buying a business requires at minimum a substantial downpayment which is generally used in conjunction with an SBA or institutional loan, as well as working capital to support the business until the sales cash flow picks up to its steady state. All serious buyers should develop a business plan and cash flow spread sheet, both of which are generally submitted with any loan application. In some circumstances, the seller may be reasonably expected to hold some debt to ensure their continued support to the transition or as a guarantee that the current level of sales will continue even after their departure from the business.

Tax considerations are always a factor in deal structure and always of concern to both the buyer and seller.  It is highly recommended that both parties of a transaction consult their accountants or financial advisors early on to best understand how to structure the sale. Because all businesses have financials unique to them, only qualified financial advisors familiar your business can answer these questions and give you guidance in this area.