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How Sellers Can Boost Their Levels Of Success

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ENLIGN DEAL TEAM | 05/28/2022

Many buyers view a publicly-held company as virtually being an open book with at least a modest level of transparency, whereas privately-held companies reveal much less about their inner workings, financial, and otherwise. Of course, this means that buyers of privately-held companies are left with no choice but to dig through whatever information is available in an effort to determine if the valuation or asking price is realistic.

Comparing Publicly and Privately Held Companies
Determining the price on a privately-held company is typically more time-consuming since privately-held companies are not listed on an exchange with real time trading information backed up with third party audited financial statements. But why do most privately-held companies typically forgo the audit process? Audited financial statements are expensive (from $35,000 and up), and cannot be justified in most private company transactions. A publicly-held company is required to reveal significantly more information whereas a private company buyer must evaluate available management reviewed data.

What Sellers Can Do
If you’re a seller, you can take steps to make the process a bit easier for buyers. One step is to work closely with your accountant in an effort to ensure that the numbers are not just accurate, but are also presented in a concise and easy to understand fashion. This move serves to boost trust between buyers and sellers and, in turn, can increase the chances of selling your business and at it's maximum value.

Determining value is another area where sellers of privately-held companies can take steps to assist buyers in determining price or value. Sellers should consider opting for an outside appraiser or expert when it comes to determining the value of their business. The most commonly selected expert is a Certified Business Intermediary (CBI). A list of every CBI in the world is available here. The opinion of an outside expert clearly carries more weight, and using an outside expert is yet another step that sellers can take to boost overall trust with buyers. The most common

Establish a Realistic Asking Price
What a business owner wants for their business is one consideration, but business sellers need to understand that what they want or what they need is of no interest to business buyers, lenders or underwriters.

The business must conform to business valuation methodologies consistent with the size, type and location of the target company. When establishing a price, there are several areas of the business where sellers can expect buyers to pay special attention. Here are a few areas that buyers are likely to explore:

Size and scope of customer base including customer concentration and loyalty
Age, experience of labor
Required working capital
Condition of assets
Overall stability of the industry
Stability / Predictability of earnings
The general landscape of competitors
Businesses relationships with suppliers
Potential disruption to the business model, products and/or services

As with all transactions, the marketplace will have the final word regarding the sale of any business. Sellers of a properly valued business should expect to receive offers within 11.7% of the asking price per the Market Pulse Survey.

Hiring an experienced business broker and taking the right steps throughout the process can definitely make the process go more smoothly and boost the chances of success. Copyright: ENLIGN Business Brokers, Inc. insta_photos/BigStock.com

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