How much is it worth? Featured

8:00pm EDT June 25, 2007

How much thought do you give to the continuation of your business beyond yourself? What if someone expresses an interest in buying your business? What is your plan if a freeway or some other project displaces your business? These questions could go on for the rest of this page.

None of us live forever. We should be thinking of all types of contingencies. And we should know what our business is worth.

“Every business owner should be planning for how the business will continue beyond the founder’s dreams,” says Lara White.

The senior vice president and diversified commercial banking manager for SunTrust banks, Inc. says, “Selling a business is usually a very emotional event. It is best to remove all emotion from the process of an eventual sale.”

Smart Business talked with White for more of her insight on what business owners should consider as they evaluate their business.

When should business owners start considering the value of their businesses?

Early and often. All business decisions should be based on the future of the business. You want to be prepared for any opportunities that come up throughout the life of a business. An excellent opportunity might be missed because you were not prepared. You have to look at all options based on your goals. You might plan on working for 40 years and cashing out. Maybe your goal is to operate the business as long as you can and then turn it over to your children. You might want to merge with another business to optimize your combined strengths. Whatever your goals, you need to define them and plan in order to meet them. You need to make sure that you are positioning yourself for any and all options.

What are the steps in determining the value of a business?

The first step is to find and select a professional to assist you. You need people who are familiar with your market. They also need to know the ins and outs of mergers and acquisitions. They need to know the valuations of businesses similar to yours.

The next step is to gather the appropriate information. You need to have good, accurate financial records. You need to know how to tell the story of your business. You need to describe the business potential. You need to know how to present the numbers. You must know how to explain why you are entertaining options. You need to find out who might want your business. All of this will help you determine the right time to sell.

How do I know that I am getting the most for my business?

The experience of your professional will help provide the assurance. He or she can help you understand the buyer’s approach. The professional can provide good advice on negotiating with different types of potential buyer.

Strategic buyers and financial buyers are going to have different approaches. Strategic buyers are interested in buying your business, with little or no changes. They plan to continue operating it as is or integrating it into their existing business. Financial buyers would plan to make any adjustments they want to make the business more attractive and sell it at a profit. Either can be the right fit depending on your objectives.

What are the different ‘currencies’ used in acquisitions and what is the ‘value’ of each?

These include: cash, seller notes, earn-outs, equity, ESOPs and any other that might fit the situations and any combination thereof. Much will be determined by what the buyer, the business and the seller can do. Besides the asset value of the business, all of the intangibles must be considered. The currency used will be based on all of the various financial considerations of the acquisition.

How are professionals compensated for their expertise and time?

They typically receive a flat fee for their services. It is also common practice to pay a percentage of the proceeds above an agreed upon minimum sales price. These details are worked out during the exploratory discussion.

Another important discussion point is determining your objectives. Price, time and confidentiality are three important ones.

Once you have determined what is most important to you, your professional can help you keep the process focused and on track.

Your professional should also do all negotiating with the potential buyer’s representative. While you have put your heart and soul into your business, it is better to keep that emotion out of the eventual selling process.

LARA WHITE is senior vice president of SunTrust Banks Inc. and diversified commercial banking manager for SunTrust banks, Inc. Reach her at lara.white@SunTrust.com or (813) 224-2465.