Benchmark Business Group

What’s Your Market Value?

February 24, 2020

There is one piece of information that is essential when you are preparing to sell your business: Market Value. Once you have established the value of your business in today’s market you have the baseline to understand how much money you will have left after a sale.

You may have an idea of what you feel your business is worth, but you don’t want to rely on what you think – get an expert opinion! Don’t pluck a number out of the air, don’t rely on your listing of assets, or your revenues – work with an experienced professional that understands what buyers will be willing to pay for your business.

It’s important to understand that there are two kinds of buyers: Strategic and Financial.

  1. Strategic Buyers are companies that buy other businesses that add value to their ability to do business.
  2. Financial Buyers look at the profit your business generates today, and the reliability of future profits.

Your business may be attractive to a Strategic Buyer if it:

  • Has a physical territory you dominate, and they want.
  • Supplies goods or services to their business, enabling them to consolidate their supply chain and protect their ability to deliver to their customers.
  • Provides more products to sell to their existing customers.
  • Has specific expertise or talent that will make them more competitive in the marketplace.
  • Sells to a customer base they want to gain immediate access to.

Financial Buyers, on the other hand, will look at the profit your business generates. Predictability of profit will decide if you get paid more, or less for the excess cash your business generates. Looking at a three-year history, a Financial Buyer will assess how reliable those earnings will be in the future. If your profits have increased year over year, and future profits are predictable, a financial buyer would pay more than if you’ve had flat growth and future profits are uncertain.

Ultimately, a business is only worth what someone is willing to pay for it and depending on your industry and the unique qualities of your business, you may sell it for more to a strategic buyer than to a financial buyer.

Don’t wait too late to work with a professional to establish a market value for your business and to explore if your business has any unique characteristics that would be attractive to a Strategic Buyer. If you’re relying on your business to help fund your retirement or start a new business venture you’ll want to know if there is a gap between the market value, and the amount of money you’ll need or want. Knowing your market value today can help you prepare yourself and your business to be in the best position when you do decide to sell.

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