The Key Elements that Determine Value

To celebrate the simultaneous release of our BizValue Android app and update to our Business Value Calculator, we decided to write a newsletter dedicated to the art and science of valuations. After all, if there’s one thing that seems to constantly puzzle small business owners it’s their company’s value.

Agreeing on your company’s value will make or break a transaction – ultimately, a company is only worth what someone else is willing to pay for it. That said, there are four key elements that impact every valuation:

  1. The Buyer
  2. Cash Flow
  3. Risk
  4. You

The Buyer Continue reading

Year-End M&A Report: Audiology Industry

December 2012 marked one of the busiest months for U.S. M&A activity in recent memory, and the audiology industry made its fair share of contributions.  Last summer, we released our mid-year M&A report for the industry predicting that total deal volume for the year would be $60-75 million.  We will revise that number upward in this report, because
at least $30 million worth of transactions took place in December alone.

We now believe 2012 accounted for approximately $100 million in transaction volume.  Our estimates consider only the acquisition of privately owned audiology or hearing aid dispensing practices in the United States and do not measure transactions involving other entities within the industry.  Furthermore, this figure only measure deals initiated in 2012.  Many deals involve deferred payments, and  millions of dollars were spent covering obligations incurred from transactions that closed in previous years; however, in order to accurately assess deal volume for a given year, only transactions closed in that year can be measured. Continue reading

The Case for Paying More Taxes

Those of you who know me may be surprised by the subject of this month’s newsletter.  It’s not a point I make often, and I certainly don’t want my own taxes to go up, so it may come as a surprise that I am about to argue that there comes a time when paying more taxes is to your advantage.

If you’re still reading, let me provide some context.  The vast majority of your time spent owning a company should be focused on growing both your business and your personal income, and the two are usually directly related.  Therefore, finding ways to reduce your “on paper” business income by treating personal expenses as business expenses lowers your tax bill and helps accomplish this objective.  To this end, most small business owners write off everything they possibly can; however, the final years before selling the business call for a change in strategy, because declaring as much income as possible can increase the price you receive in a sale.  Let me explain. Continue reading

How to Tell if You are Ready to Sell Your Business

Some business owners face an unfortunate reality – external circumstances force them to sell their company before they otherwise would.  Divorce, family emergencies, poor health, and financial instability all create the need for a quick exit or liquidation.  The majority, however, get to choose their time.  We’ve written extensively on the subject of timing the sale of a company, and we firmly believe that company and market factors outweigh personal factors when it comes to making this decision.  That said, personal factors can’t be ignored.

Most business owners invest a substantial amount of time and money into their companies, to the point that they become an extension of themselves.  To some, selling means giving up part of who they are.  So, how do you know if you are ready?

You find yourself saying “If someone offered me __________________, I’d sell it to them tomorrow”.   This is a telltale sign that you’re ready to sell, and now it’s all about negotiating the right number.  If you find yourself saying this, it’s time to take the next step. At the very least, test the waters to determine how close you can get to your number. Continue reading

Small Business Transaction Marketplace Continues to Grow

The market for buying and selling small businesses showed signs of continued growth through the first half of 2012.  BizBuySell, the world’s largest online business-for-sale marketplace, reported in its Q2 Insight Report that the number of businesses sold in the first half of 2012 grew by 1.2% over the previous year.  The report aggregates transaction data reported by business brokers nationwide and is viewed as a leading indicator of the small business transaction marketplace.

“Based on what we have heard from brokers, as well as our own experience, we are expecting a strong second half for 2012 that will continue the slow but steady improvement we’ve seen since small business sales activity began to strengthen in mid-2009,” says Mike Handelsman, group general manager of BizBuySell.com and BizQuest.com.

We were pleased to see the results of the report – but we weren’t surprised.  From our perspective, two primary factors, one long-term and the other temporary, contribute to this trend.  First, many business owners who originally planned to sell between 2008 and 2010 were negatively impacted by the recession and chose to delay their sale in order to allow both their companies and their 401(k)’s to rebound.  As the economy continues to improve, valuations return to their pre-recession levels, and business owners feel confident in their choice to sell.  Furthermore, buyers were hit equally hard and delayed purchase decisions because they lost confidence, could not qualify for a loan, or both. Continue reading