A Quick Guide To The Three Methods Of Business Valuation

Business valuation is the process wherein the economic value of a business or company is determined. Potential buyers and sellers use the information before proposing deals, mergers and acquisitions, among other things. There are three approaches (or methods) to business valuation. 

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Asset approach

 

The asset approach determines the value of a company or business based on how much money is needed to set up the same company or business. There are a couple of sub-methods under the asset approach. They are the asset accumulation and excess earnings methods. Asset accumulation helps compute the value of a company’s assets and liabilities. Excess earnings method calculates for values of things like business goodwill. 

Income approach

 

This is a bit self-explanatory. The economic values of businesses are based on income – specifically on its capacity and risk to generate revenue. The sub-methods under the income approach utilize capitalization and discounting as a means to establish risk. 

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Market approach

 

The market approach compares the prices of similar businesses that were recently sold. This approach is better for private companies, but may be inaccurate when it comes to public companies. Although the methods used here are a standard way to look at fair market value.

The professionals of Generational Equity conduct a full evaluation of a business before taking their client to market. Learn more about the company’s evaluation service here.

When Is The Right Time To Sell a Business?

Starting and managing a business are just a few pieces of the puzzle that make up successful entrepreneurship. Every seasoned business owner knows that what really separates successful entrepreneurs from the rest of the pack is their strategic planning for a business' exit and knowing the optimal time to move on and sell a business. 

Often, business owners decide to sell to optimize the value of their company and to exit at a time when they can gain the most profit. If a lucrative opportunity presents itself, considering a sale is one strategic exit plan for businesses.

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Some entrepreneurs inevitably arrive at a time when he or she will no longer feel inspired with his or her work. Others also come to a point where their skills no longer match those of the needs of the company. In these situations, selling the business is a good exit option. It is best to let go and move on to new business endeavors than to stick to a venture that no longer fuels one’s creativity and passion. Selling a business is not as simple as it seems – it is a decision that requires strategic planning and careful consideration. Challenging as it may be, entrepreneurs must bear in mind that if he or she can no longer sustain a business on the path to success, moving on is the best option, especially when the welfare of employees is considered. 

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Generational Equity has an experienced team of M&A professionals who provide insightful strategies to middle-market entrepreneurs contemplating an exit from their business. Learn more about the company’s services by visiting this website.

Making a Business Attractive To Buyers

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Entrepreneurs who decide to sell their business should make their business attractive to buyers in order to close an optimal deal. Here are some ways to make a business buyer-ready:

Management structure

Make sure that the business is not overly dependent on the owner. Create a middle-management team and delegate key decisions and critical client relations to them. Buyers should see that the business’ clients will remain to be faithful even if the management changes.

Profitability

Make sure that you have a documented business plan in place that outlines future industry and company growth and clearly examines the profitability of all lines of business. Buyers will want to have confidence in the on-going viability of the business.

Edge

Competitive edge works hand-in-hand with profitability. The buyer must see that the company’s products and services are distinctive and could not be easily copied by competitors.

Culture

The employees, especially the key members of the management team, should know every detail about the business. They should be well-trained and should have knowledge on how everything in the company works.  

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Location

Would potential buyers find the business location attractive? Is everything neat and organized (the warehouse, delivery trucks, and the office)? In the digital sphere, potential buyers should be sufficiently robust so they will be able to access everything easily.

Ultimately the key to building a buyer ready business is to look at the company as a professional buyer would. Buyers avoid risk as much as possible. The more you can do in advance to make your company less risky in terms of owner dependence, customer concentration, and financial reporting accuracy the better position your business will be in when approached by buyers. 

Generational Equity helps middle-market businesses find potential buyers or opportunities for mergers and acquisitions. Visit this website for additional information.

Healthy And Robust: The Driving Forces Behind Successful M&A Deals In Health Care

There is a notion among relatively inexperienced investors that M&A transactions between healthcare providers are risky because of the technical, regulatory, and commercial factors considerations. Such idea, however, is largely misguided.

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According to a study that covered market activities between 1995 and 2008, nearly 60 percent of mergers and acquisitions completed by health care companies had a much higher return on investment compared to pharmaceutical and medical technological indexes in the same time frame.

A closer examination of all the M&A transactions between health care companies reveals common characteristics among the entities. Firstly, through frequent acquisitions of the company of interest, the acquirers steadily develop their strength and framework. According to the data, the companies which yielded the highest returns were frequently acquired, with nearly one closed transaction per year.

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The size of the deal also plays a role in the transaction’s success. The manufacturers that did better concentrated on smaller “tuck-in” acquisitions. They executed the “string of pearls” strategy, where frequent acquisition of small assets resulted in increased and sustainable returns.

Health care companies also invest when other industries do not. They create opportunities which will result in them gaining great value through mergers and acquisitions—when the downturn is more broad-based and extended. For instance, in the 2001 recession, the health care industry overtook the telecom and energy department by as much as 17 percent.

Generational Equity guides owners entering the M&A process in all stages of stock or asset sales, company restructuring, and divestitures. For more about the company and its services, visit this website.

Key Considerations Before Selling a Business

Before the sale of a business, various considerations should be made to ensure a successful and profitable transaction. Here is a short checklist of things to take note of before selling a business:

Why are you selling your business?

First, make sure that selling is the right decision. Are you selling because you want to pursue a new business venture? Are you selling for financial profit? It is important to have a solid reason as to why you are selling in the first place, for this is something potential buyers would most likely ask you in order to determine if you are truly a committed seller.

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Is your business growing and profitable?

Once you have identified your reason for selling, it is time to collate proof that your business is growing and profitable. Documenting that you are selling a thriving business or company will draw more buyers. Look at your annual earnings, discuss and analyze your business and its potential growth with your accountant, and take note of all of your assets. Doing these would not only help you determine your selling price but also elevate the perception of buyers on your business.

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What are the specifics of the sale?

Before talking to potential buyers, the terms and conditions of the sale should be laid out. Think of the sale price, deposit amount, settlement period, and transition arrangements, taking into consideration that buyers would most probably negotiate. You should also prepare the contract, ask a solicitor to review it, and make sure that legal matters and tax implications are dealt with.

A distinguished M&A firm, Generational Equity. prepares middle-market businesses in every step of a merger and acquisition transaction. Learn more about the company and how it can help you make the best sale on your business through this website.

Masters of Mergers: The Importance of Hiring a Reliable M&A Firm

Managing a business is different from selling it. Most owners think that because they’ve been in the industry for a long time, they can gauge how a transaction will go. In reality, many factors come into play before a successful sale of a company could be made. This is why companies enlist the help of a good M&A firm before putting their businesses up for sale.

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M&A firms provide representation for their clients. Part of the process is a comprehensive evaluation of the business. Once the data have been gathered, the firm gives the owners insight on how they are perceived in the market and proposes directions for either development or a sale. The firm also helps the company present their materials to potential buyers. Like coaches, M&A professionals guide the company step by step before, during, and after the negotiations.

Establishing a business is challenging. Putting it up for sale is a different initiative and requires all hands on deck. What M&A firms do is more than just negotiating. They help the companies turn their exit strategy into an effective and profitable one. Once the end goal has been achieved, the business owners do not only get value they deserve for having worked hard for the business, they could also fulfill their visions for longevity and expansion.

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Generational Equity is a company of experienced merger and acquisition specialists who can equip middle-market companies towards a deal with optimal buyers. To know more about the firm, visit its official website.

Sale Prospects: A Brief Guide to Potential Buyers

When it comes to selling an enterprise, finding the right buyers is half the challenge.  It could be tempting for most business owners to settle for anyone who drops by with a generous enough offer.  However, some goals during the sale depend on snagging a particular type of buyer.  Some sellers, for instance, would want to retain partial ownership of the organization, which would make them more partial to some types of buyers.

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Many buyers of lower-middle market enterprises are corporate strategics.  Their acquisition strategies often involve breaking into new markets and diversifying their current range of products and services via acquisitions.

Private equity firms and family offices, meanwhile, represent an investment entity and focus mainly on finding companies to acquire, wherein they would make significant investments to boost the business' value.  Their strategy on keeping businesses vary. Some retain their new companies for a set period to build its value, upon which it is sold. Other firms, family offices in particular, practice a buy-and-hold strategy and retain the companies in their wing in the long run.

It pays to align one's enterprise to the demands of specific buyers.  Different categories of buyers look for different things in a business, and choosing to highlight these features would help attract more buyers of a particular type.

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Generational Equity helps business owners navigate the process of selling their business.  Visit its website for more on its approach to lower-middle-market mergers and acquisitions.