To do a proper business valuation for your business, three things are needed. We will need your last three years of profit and loss statements (also known as income statements), your business tax returns, and balance sheets from that time period. For lower-middle market businesses, we also like to see a statement of cash flows. Why do we need this? We need to see the revenue trend, the run rate for the business this year, and how much cash flow the business is generating. This can be through an EBITDA calculation or from a version of owner’s cash flow or seller’s discretionary earnings (SDE).
Once we have a good sense of what the business is doing, we can get a good business valuation for an Austin Texas or San Antonio company. This information will be kept confidential from buyers until the due diligence process begins. Due diligence usually begins with a letter of intent or an indication of interest in an auction process. How do you improve that valuation? In a quick sense, the revenue trend must be up, the industry must be a growth industry, and earnings must also be headed in the right direction.
Buyers want repeatable cash flows. Assignable contracts, works in progress, or any other way that ensures a buyer that the business will not collapse following closing is helpful. This could simply be a solid sales and marketing plan. Any of these characteristics will help enormously in the business valuation and due diligence process. Other reinforcing signals for buyers include a layer of management that does not include the owner. Having a sales force, sales manager, or operations manager, that helps ensure that the business will continuously function following the close will only help your business valuation. A business seller must put themselves in the place of the business buyer. What will the buyer want to see? If you can answer these questions from the buyer’s eyes, it will help your business valuation as a seller.
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