Understanding how to sell your business starts with deciding the price you’ll sell your business for. Business Brokers breaks down all the ways that can help you identify the true value of your business.
How To Sell Your Business: Identifying Your Potential Buyers’ Motivations
To know how to sell your business at its true value, you’ll need to know how to calculate your business value. For most small to medium-sized enterprises (SME), their value is calculated based on their EBITDA or PEBITDA. But there are different approaches to which calculation is more relevant to you and your business’s value. One of them is investigating the reasons or motivations behind your potential buyers.
The first type of business buyers are people who want to run their own businesses, but choose to do so by acquiring an existing business. This is because building a business from scratch requires huge initial investment, but once a business is running, the owner only needs to allocate a budget for fixed costs, which can often be covered from the revenue already generated by the business itself. For this type of buyer, highlighting the cost of building your business and comparing it to the cost of building a similar business at present can leverage the price of the business you want to sell.
The second group are potential business buyers who are looking to diversify their investment portfolio. This type of buyer will look into the profit records and forecast, hence highlighting the growth of your business’s profit, its forecasted growth, and how your business buyer can increase profit can be the key to selling your business at the best price.
How To Sell Your Business to Future Business Owners
Since future business owners may be planning on working full time in the business they purchase, they might be interested to know about your PEBITDA. Short for Proprietor Earnings Before Interest, Tax, Depreciation & Amortisation, PEBITDA is used to indicate how much a business delivers in earnings to one full time working proprietor/Director.
To know the true cost and value of your business goodwill, cost of creation, and current assets, you’ll need industry and market knowledge. If this is not part of your expertise, contacting a business broker to calculate your PEBITDA is recommended. Business brokers can also assist you in getting potential buyers and finalising the deal, at a very affordable price as they’re usually paid in commission, so it’ll be a sensible choice to consult with a business broker on how to sell your business.
How To Sell Your Business to Business Investors
Meanwhile, a different expertise would be required to know how to sell your business to business investors. Since investors may not be personally involved with the day-to-day operation of the business themselves, they will most likely hire someone for that job. For this reason, they will want to know the EBITDA of your business. EBITDA is short for Earnings Before Interest, Tax, Depreciation and Amortisation. This measurement is identical to PEBITDA, however it also includes a market salary expense for the role of the working proprietor.
These types of buyers may also be interested in investigating your assets, and ask for a calculation of the depreciation of those assets. Moreover, instead of an estimation of the cost of building your business from the time you built it, they will be more interested in the estimated cost to build it in the current market.
They may also be familiar with a certain template of financial statements, such as debts, turnover, cash flow, and profit and loss statements. Since being able to present your business in jargon and reports which look professional and familiar to them can increase the perceived value of your business, contacting a business broker to assess the value of your business can help you sell it at the best price possible.
How To Sell Your Business with a Business Broker
We know you are obviously the best person to know and calculate the value of your business, and it is also important for you to conduct your own research if you are trying to sell your business. However, it can be helpful to seek professional advice so that we can ensure the smooth sailing of the entire process for you. So if you’re looking for a team of professional business brokers to assist you in creating the best exit strategies for your business, get in touch with our friendly team. You can also fill out a form and receive our guide book to help you sell your business for its true value!
