Understanding the Value of Your Business
If you own a company, you’re likely aware of roughly how much profit you’re earning and how much you’re selling. You’re also surely familiar with all the investments made in terms of gear and infrastructure.
However, it’s a safe bet that, in many cases, you won’t know the _true _value of your business unless you perform a proper business valuation Long Island ventures could be particularly prone to fluctuations in value due to high competitiveness. This is a bold claim that bears elaborating upon.
The value of a business is comparable to the value of a house, despite the obvious differences. Your house could be bathed in gold and embedded with precious gemstones on every corner, but these elements by themselves are not enough to get an accurate value of the property isolated from other variables, since it doesn’t exist in a vacuum.
For example, the neighborhood’s conditions, and access to essential services like schools, hospitals, or public transportation could definitely alter the price of real estate.
The same happens in the case of businesses. Small businesses, especially, could be positively or negatively affected by the local economy, market conditions, and depreciation. For this reason, the aid of financial professionals is crucial, because they can incorporate all these metrics more accurately into their business valuations.
Long Island ventures ought to be subjected to business valuations often. The purpose of a business valuation Long Island or elsewhere is not solely reduced to a company sale (in which case, you would contact a competent business broker who would it). Let’s unpack this idea for a bit.
Purposes Of a Business Valuation Long Island
Apart from selling your business (which is the most common context in which a business valuation could take place), there is a myriad of other situations which could call for an exhaustive valuation:
* INCREASE SHAREHOLDERS: If you want to get new partners and increase the number of shareholders, it’s important that you know the true value of your company and its shares to guarantee transparency in the whole process.
* FUNDING: Companies don’t get funding based on speculations. The best way to get a sizable loan from a respected financial institution and under the best repayment conditions is by showing how much your business is _really _worth based on accurate external and internal data.
* PERSONAL ISSUES: One of the most common personal events that could prompt the need for a business valuation – believe it or not – _is a divorce filing_, in which case the judge would ask for an accurate business valuation in order to include your enterprise as an asset for the division of property. As well, other potential family problems of similar nature could raise the necessity for a business valuation.
Business Brokers and Business Valuations
Long Island business brokers would only perform these business valuations whenever there is a sale involved. If you are attempting to sell your trade, you won’t need to hire another professional to do it while the broker takes care of other aspects of the sale, for most brokers also have the necessary qualification to define the true value of your company.
Read MoreWhat is Your Business Really Worth?
It’s normal to get excited about your first business. You proceed to buy some fancy furniture, set up a nice waiting room, revamp the office and equip it with the latest gadgets, or even place some expensive action figurines to brag. You would think that, at some point, these details might truly help jump start your venture.
The sad reality is that it doesn’t really matter how much you invested in a company. Assets are not what determines the true value of a company, otherwise, you’d just be selling a good-looking establishment.
A business’s worth is determined after an arduous and exhaustive business valuation. New York City business brokers who are worth their buck will ask for financial statements, balance sheets, cash flow data, and a plethora of records in order to get a hint of the company’s profitability and growth potential. Contrary to what many would believe, these are highly objective metrics that will ultimately make a huge difference in a given business valuation.
New York City, despite its shortcomings, has one of the most competitive business-selling markets in the country. Hence, It takes a lot more than just showing furniture and gadgets in order to make a good sale. Even If you had all the trappings of a successful company, if you can’t manage to demonstrate your success with tangible financial data, no serious investor will show interest in what you have to offer.
What Actually Affects Business Valuations NYC
A detailed business valuation would take into account both internal and external data.
In terms of internal data, revenue is an important indicator, but not just revenue in and of itself. A company’s potential is truly manifest whenever there is recurrent revenue or revenue growth.
However, we should not overlook other factors such as market share, sales pipeline, customer portfolio, organization, and, yes, even infrastructure and assets (though they’re not decisive factors by a long shot!) Think of these factors as levers. The value you’ll get will be determined by how you go about moving those levers. This analogy will hopefully draw a more comprehensive picture of how you’re supposed to understand the term “value” in this context.
It’s true that market sentiment plays a big role in driving the price of your venture to interesting levels. Most people inside the markets are amateurs and not very savvy at measuring raw data, and there is a sweet spot wherein emotion can push the levers described earlier, albeit just slightly.
Some would take the extreme view that a company is worth whatever people are willing to pay for it, just as with any other asset. This is not entirely inaccurate, though there is some truth to that statement. Valuation is oftentimes performed using relative methods that look at the value of recent business sales for reference. This comparative assessment could be dangerous if not coupled with other variables, though.
Don’t perform a DIY business valuation. New York City is filled with competent business brokerage firms that could offer an honest evaluation of your company’s value and provide counsel throughout every stage of your negotiations with potential investors.
Read MoreWhy Your Business May Not Be Listed by Business Brokers
Whenever you wish to sell a business, it’s always a good idea to count on the assistance of a good business agent.
However, you should not expect the business broker to take care of all the problems. Some Long Island business brokers can be overly picky when deciding to list a business for sale, which is highly understandable once we consider the complex regulatory framework that must be complied with, coupled with overload owing to the recent spike in demand for business brokers.
Simply put, you would have to convince, not only a prospective buyer but, at times, even your own Long Island business brokerage firm that your venture is worth dealing with. Good brokers can offer assistance to companies with specific and workable management glitches, but that doesn’t mean that they alone can turn the tides in your favor without your input. In several situations, they could simply decline to list your business to protect their reputation and save time and money.
These are, in a nutshell, the main reasons your business may not pass muster in the eyes of a Long Island business broker:
Attitude
For one, business brokers sift out clients who are overly intransigent or emotional when it comes to their business’ valuation. We find this point worth elaborating upon:
In terms of business valuations, feelings are not weighed into the market value of an asset, but it’s the market that ultimately determines how much said asset costs. As a business owner, you may think your business is worth a given amount, but, bluntly speaking, the market doesn’t care about your subjective estimation.
It’s the role of a Long Island business broker to give an objective assessment and to inform sellers of how much the market is willing to pay for their business so as to not give false hopes or expectations. By doing that, brokers are behaving in their clients’ best interests, because a fair valuation ensures a quick and successful sale.
Another factor to keep in mind is the willingness on the part of the client to provide pertinent documents and information to the broker in a timely manner.
Brokerage firms require the most accurate data possible about the companies they sell. To that effect, they should be able to ask tough or uncomfortable questions (just as a lawyer would) to satisfy potential buyers who would also likely ask those same questions and, in consequence, secure the best outcome possible for their clients. If brokers are denied this possibility, they’ll reasonably see no point in going forward with listing a company they have no knowledge about.
Shady Accounting
This goes without saying, but it bears highlighting. Business brokers appreciate transparency in a company’s dealings. In that sense, clients must have clean books and regular access to comprehensible financial statements, and the broker must rest assured that the owner has a good relationship with the IRS and is not prone to engage in tax evasion.
By keeping your business in order, financially speaking, you’ll boost the confidence of not only the broker but also the potential buyer, for they will feel more comfortable entering a deal with a law-abiding citizen.
Good Management
Poorly-managed businesses are instant deal-breakers for Long Island business brokers and buyers. By poorly managed, we don’t just mean businesses that trade at a loss, but also those that are wholly reliant upon the owner’s permanent engagement and that operate in an improvised fashion.
A prospective buyer should have access to a comprehensive and detailed manual about how the company operates on a daily basis and should verify that the company can survive without the owner for at least a month. Brokers will likewise demand their clients to have these instruments handy and will oversee that these conditions are met.
Owners may know what transpires inside their companies down to the most minute detail, but they shouldn’t expect buyers or brokers to acquire the same knowledge the hard way. Good business brokers could provide guidance as to how processes, systems, and manuals should be laid out, but they’re not required to do all the heavy lifting. If these issues are not fixed, a broker is not bound to list a business that is, for all intents and purposes, unsellable.
Read MoreHow To Increase Your Business Value
Many household owners would revamp their homes prior to their sale in order to increase the value and generate much higher returns, Businesses are no different in principle, though the methods are a bit more complex and you need to be able to simultaneously tackle many fronts.
How To Increase Your Company’s Value Before Business Valuation New York City
Business valuation is one of the first milestones in the process of selling a business. The results of this valuation, though, hinges upon your ability to boost your venture’s worth before the business agent can move forward to analyzing spreadsheets and financial statements.
You may find these recommendations useful before getting started:
1. CONSULT AN AGENT
A good business broker should be able to assist you in this regard. Business brokers who excel at business valuations NYC and elsewhere ought to be able to provide tips to heighten your profit beforehand so that the fair value of your company increases without having to make up numbers, hence giving you a better return on investment as you seal the deal with the buyer.
2. RECORD ALL YOUR PROFITS
It’s very tempting for many business owners to slide cash into their pockets and elude the taxable event. When you get paid in cash, you may want to record that sale and pay the respective tax, as that will undoubtedly improve your business valuation. NYC is known for being a “fiscal hell”, but we can assure you that you’ll fare better registering all your sales in the long run, as the broker is able to come up with much higher price tags with verifiable data to back it up.
3. Create an improvement plan
It doesn’t work to simply abandon your business operations as you plan on selling. It’s always crucial that you show interest in the outcomes of your company, even at this stage, so that the prospective buyer can envision a smooth operational transition and be more enticed to carry on with the negotiation.
For this purpose, you’d still want to make investments and improvements in the operational side of things to showcase your company’s worth more tangibly.
4. CUT DOWN UNNECESSARY EXPENSES
Buyers do not care about convenience expenses. In fact, they would love to have expenses cut down to only the essentials. You could probably do away with those subscriptions that ultimately don’t add that much value and could become a hindrance down the road.
5. Boast
It’s not a bad thing to boast about your company’s unique perks and features that separates it from the competition. Your broker can take advantage of these perks to boost the business valuation. New York City has a very competitive market and it’s important to be able to stand out from the crowd.
For example, if you own a guitar shop, you could highlight how you may offer some unique sets of strings or a free tutorial/installation job included in every purchase. Even the most trivial difference (such as opening on weekends) can make or break a business valuation (NYC business valuations especially).
Read MoreDon’t Hire The Wrong Business Broker
A business broker is a very useful “asset” for you, regardless of whether you’re interested in buying or selling a business. Hiring the right New York City business brokers is crucial for a successful deal. However, you must choose wisely to save lots of headaches and potential losses down the road.
DON’T HIRE THE WRONG NEW YORK CITY BUSINESS BROKER!
Has it ever happened to you that you paid a so-called “professional” to perform a specific job and he/she actually ended up making matters worse? A sort of “buyer’s remorse” kicks in, in which you end up thinking that you might have done a much better job on your own.
The same risks can arise with business brokers. New York City is packed with a plethora of people who advertise themselves as “business agents”, but not all of them have the required credentials or experience to handle all the chores involved in a business sale. In some cases, they have the pedigree but are simply too negligent or lazy for the job.
Traits of a Bad Business Broker New York City
These are some of the most common signs that you’ve hired the wrong business brokers:
* They will hardly ever respond to your calls or messages, even during office hours (unjustifiably so).
* They don’t really have a good network of connections, bankers, and clients to make the deal go faster (even when they claim they do).
* Bad business brokers would scare good prospective buyers and lenders off, at times due to intransigence and, at others, due to arbitrary changes in the negotiation terms.
* They would most likely leave a business listing to its own luck after publication and hardly ever answer questions from inquirers.
* A lousy business agent will fail to do proper marketing for a prolonged period, killing the momentum and making you lose a lot of good selling opportunities.
TRAITS OF A GOOD BUSINESS BROKER NEW YORK CITY
These are, conversely, the characteristics you’ll find in _GOOD_ business agents:
* They work hard to define the fair value of a business according to the company’s financial status and market conditions. They make sure to let the client know why they came up with a given valuation, even if it does not meet the business owner’s expectations at first.
* They tend to have a background in banking and to know the ins and outs of how financial institutions operate when it comes to loan applications.
* They have good connections with bankers that can fast-track the lending process for buyers.
* They assist both parties instead of just the one that hired them, so as to make the deal close faster and in the best interest of both.
* They’re prone to find a wide array of qualified potential buyers and, consequently, a great variety of offers for the seller to choose from.
* In the same vein, they actively screen businesses on sale to grant an investor with a long list of available options that match their interests.
* They’re capable of deterring the deal from being killed prematurely by the respective legal teams.
* They exercise a very aggressive marketing campaign in which they strive to display the company they’re aiding to sell under the best possible light.
Common Questions that Business Brokers in NYC Can Answer
Business owners can find it hard to wrap their heads around all the possible variables present in a business selling process. It’s part of what justifies the work of business brokers in NYC and beyond – to begin with.
A business broker (in NYC, of all places) should be readily available to answer many of the questions that an inquiring company owner may have, related to the arduous process of selling a business in such a regulated city. As well, he/she ought to be capable of offering recommendations on how to get the process going and informing of the different hurdles that can be found along the way.
Common Questions that Business Brokers in NYC Can Answer
Below we’ll list some of the most frequently asked questions that business owners may be asking:
1. HOW DO I CHOOSE THE CORRECT BUSINESS BROKER IN NYC?
The best possible way to determine whether a business broker is good for you is through interviews. By interviewing two or more individuals, you could intuitively discern whether the broker is reliable and has the necessary skills, knowledge, and connections to make the sale happen in the shortest period and with the best price tag.
As a side note, this is not a question that a specific business broker could answer, but we’ve included it here anyways.
2. How Long Does It Take to Close a Business Sale?
Business brokers get asked this quite a lot, and understandably so. Business owners would want the process to end as quickly as possible so that they may get on with their lives.
An honest business broker would tell the owner to not set expectations with regards to duration. Many factors could alter the time frame for a business sale, including the size of the company, its location, and the financing options available at a given time.
Valuations can already take a huge amount of time since all kinds of market metrics must be taken into account by business brokers. NYC is likewise a particularly difficult market to tackle due to the great number of competing businesses that operate therein.
In summary, the span of time it takes to sell a business cannot be feasibly ascertained.
3. How Does a Business Broker NYC Find A Buyer?
A business brokerage firm has the required tools to find buyers quite easily. They can choose from a network or shortlist of buyers, or through busy marketing via a myriad of business sale platforms. Brokers can also perform marketing listings on various top publications in the industry for increased exposure.
Additionally, business brokers in NYC are trained to sift through all prospective buyers and filter those with the most qualifications and possibilities of getting financed.
4. What Are The First Stages of A Business Sale?
Business brokers would first have to go through a business valuation and market analysis. For this purpose, a good business broker in NYC would ask for documentation and financial records to be able to delineate an accurate pricing range for the business. This would also grant a business owner the opportunity to invest in improving the business from an operational standpoint, as well as infrastructure, with the goal of settling for a higher price.
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