Feb 5th, 2013 by Achim Neumann, President
If a small business owner wants to sell a company now or sometime within the next five years, an independent business valuation is an essential first step. If the time is now, then the appraisal serves as the basis for a potential deal structure. Should a potential transaction be further down the road, then the valuation provides information for properly positioning the firm to maximize financial return when the time comes.
“Here at A Neumann & Associates, we require that an independent third party market valuation be put in place prior to any sales engagement,” says company President Achim Neumann. “Our 25 years of experience shows that the benefits to the small business owner are significant in terms of both time and money.”
Why is a neutral-party fair market appraisal so important? Let’s dig a little deeper to determine the benefits for a business owner:
- The Guessing Game is Eliminated– even though some business owners think they know what their business is worth, they are really only guessing or perhaps using incorrect industry rules of thumb. A multi-dimensional and accurate report of the firm’s worth to prospective buyers will ensure that no money is left on the table.
- The Need for a Buyer Valuation is Eliminated– if a proper third party valuation (as opposed to one created by the firm’s CPA or broker) is in place, then prospective buyers have no inclination to ask for one themselves. Any discussion of fair market value should be driven by the seller, not the potential buyer. An independent appraisal provides the buyer with a value justification and identifies the anticipated rate of return on their financial investment– problem solved.
- Deal Structure and Market Feedback is Provided– an independent valuation lets the owner know exactly what to expect if he decides to sell his business.. Every industry and business is unique and therefore every business sale provides a distinct set of anticipated circumstances. A savvy business seller needs to be aware of these beforehand.
- Value Drivers are Analyzed– the factors that are influencing a company’s value (both positively and negatively) are identified for the business owner. By knowing exactly where they stand relative to others in their industry and to their own goals, a shrewd owner will be able to implement changes as part of an orchestrated strategy to improve overall value.
- A Faster Deal Closing is Achieved– since the independent valuation firms we work with are mostly accredited and recognized by the financial community (including the SBA in certain cases), commercial financing is obtained quicker and the seller gets to the closing table approximately two months faster than they would have without one in place. Time is money, especially when a business is being sold.
“Since joining A Neumann & Associates in 2010, I have seen many small business owners take advantage of the valuation process to better position them for a proper exit” says Gary Herviou, the firm’s Central Jersey Marketing Director. “Moreover, a smooth transaction is almost impossible without an independent appraisal in place prior to going to market.” An independent fair market valuation is confidential, cost-efficient and not time-consuming for the small business owner. More importantly, it can be completed within 10 days after receipt of all documentsand updated every 18 months at very little cost, which serves as a vital tool for measuring progress along the way.
Michael Gersten, Northern Jersey Marketing Director for the company, makes the point clear. “If selling the business is a possibility, it’s incumbent on the owner to look at the big picture and get the cold hard facts regarding the salability of the company in advance.”
This valuation mindset can be summed up as follows: value now, plan ahead, and maximize return at closing. Well-informed business owners will make effective decisions accordingly and reap the rewards upon exit from the business. The unprepared will just have to take their chances and hope for the best.
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A Neumann & Associates, LLC is a professional merger & acquisition and business brokerage firm with 25 years of experience in New Jersey, New York, Pennsylvania, Delaware and Maryland that assists business owners and buyers with the business transfer process in a completely confidential manner. The company is affiliated with BBN, which has 450 offices, and access to a national network of qualified buyers and sellers. For more information, please contact A Neumann & Associates at 732-872-6777.