When you have a business that you're wanting to sell, do you really know what is required of you? How do you really know you're ready? Is it something you've thought through and have prepared yourself for? Selling a business is a different caliber of selling, and there are so many details to consider. While you may think it is just a simple task, it's so much more than that. There are a lot of things that you should be thinking about, and one of the very first is the possible methods for selling a business.
Yes, there are a variety of methods you can take when you are ready to sell your business. Do you know which method you're going to use when it comes time for you to sell? If you don't know about the various methods, we'll discuss some of them for you so you can make an informed decision.
With this approach, you would look at other businesses in the same or in a similar industry as your business. You'll look at those that have been sold; you want to get an average of other businesses and base your selling price from there. Using this method is a risk… you may not be able to get the true value of your business.
With this approach, you are assessing the price of the business based on the fair market value by looking at the individual assets. One thing you have to keep in mind about this method is that it doesn't adequately account for the intangible assets your business has… this includes the goodwill of your business as well as the future revenue that has been forecasted for your business.
The income-based method is the one that is commonly used and the most known. With this approach, you are looking at the amount of money that the business has generated for the owner. You will be looking at the cash flow into the business and then take into account any debt that is owed.
Multiple of Discretionary Earnings Method
With this method, you are looking at all of your discretionary earnings; that includes pretax, salary, and depreciation earnings, along with any other expenses there may be. When you use this method it's important to realize there are two steps to it:
You need to calculate the discretionary earnings for your business for the next several years. The best way you can do this is to take your most recent earnings and estimate what may likely happen in the future. You can also take the average from your last several years and use that figure.
You want to multiply the figure that you get in step one and multiply it by anywhere from 0 to 3. The figure you will get will account for the tangible business assets your business will utilize going forward.
These are the most commonly and most effective methods you can use when you prepare to sell your business. Seeing that you know these methods, you can make an informed decision that will work best for you when you are ready to sell your business.