Empire Discusses Valuations During the Pandemic

Los Angeles, CA, 2020-Apr-04 — /EPR Network/ — Empire Business Solutions, a leading independent Business Broker in Los Angeles County and Orange County has been involved in business for sale in Orange County for over 16 years with over 90 transaction under our belt.  Roy Moss, President of Empire, says “Should you sell your business now?  What are ramifications on your valuation with the current business environment being affected greatly by the Covid 19?.”

WHAT’S THE BUSINESS WORTH?

In the past we had a great process for determining the value of your business.  Here is a summary of the steps we would have taken in the past to offer a Broker Opinion of Value.

The first thing you to do before you sell your business is to find out what the business may be worth if you put it on the market. A valuation is not about what it’s worth in the current owner’s hands; it’s about the company’s transferrable value.  Truthfully, it doesn’t matter what your accountant, attorney, friend or lover thinks the business is worth, only the market (willing buyer, willing seller) can provide the correct answer. There is of course a way to at least start with a defensible estimate of value. You can get a Certified Business Appraiser to do a valuation, but it will be costly. An experience M&A advisor or seasoned Business Broker can do a Broker Opinion of Value (BOV) to give you a reasonable estimate of the most probably selling price (MPSP) for your business at far less cost. Here are the advantages of an appraisal or BOV: 1. Is the value high enough? Let’s face it, we all believe in sweat equity, but it doesn’t exist in a sale. An appraisal provides an informed opinion about the business value, so a seller can decide if the asking price will be enough to move on from the business. 2. It provides confidence that the decision to sell is sound with family and partners. 3. You can see the business from a neutral, 3rd party perspective, which is how a buyer and lender will see it. 4. It puts less strain on a transaction. There are obviously many deal points between the buyer, seller and lender in a transaction and since price is normally the biggest, a valuation can reduce tension and allow more focus on the terms and conditions of a deal. 5. Shows preparation and forethought. As noted, buyers have literally millions of choices when buying a business and most of those businesses are not properly packaged for sale. A business valuation shows a buyer you are a serious seller and not simply “testing the market”. 6. Saves time and money. Wouldn’t you rather know now? There is cost and time required to get an appraisal, but the advantages far outweigh not getting this done. So, the question becomes, how do you get an appraisal and just how painful is the process?  Good financial records reduce the chances for a buyer to work the price down during due diligence. If you want to get a Certified Appraisal, use someone who is independent. If you want to get a BOV, look for a Broker who has many years of experience and is well versed in providing a Broker Opinion. Most experts agree that the starting point for valuing a business is to normalize or recast your business’ earnings to get to a Seller Discretionary Earnings (SDE) or adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).

Things have changed.  The market has changed.  If your business has been shut down during this period, buyers will look at your business differently.   Financials will not look very good if you have been shut down.  How will buyers view this period you are in?  Two schools of thought on this.  One perspective is that this is a one-time event, will not continue and business will bounce back to previous levels.  The other thought is that buyers will want to see revenues and profits come back before giving serious consideration to any business.  Which one of these will prevail.

If you want to discuss this, please contact me.

Contact Roy Moss, President of  Empire Business Solutions at 714-374-6430 to discuss the process in selling or buying a business in Orange County.  Empire has been in business since 2004 and is considered a  leading California business broker with offices in Orange County and Los Angeles with primary emphasis on businesses in the $1.0 mil-$10.0 mil revenue range. For more Detail, visit https://empireoc.com