You’ve thought about selling your business someday, but do you know how many synergistic factors are involved in that valuation process? Do you want to gain a deeper understanding of how valuation impacts the sale of your business? Are you looking for a solution when it comes to this subjective aspect of business? Look no further because this episode of Napkin Numbers has the key to unlocking your understanding of valuation and its direct impact on business sales. By providing valuable insights and strategies, Scott and Rahsaan will empower you to achieve the desired outcome in the sale of your business.
Understanding Your Worth: Keys to Successful Business Valuation
Napkin Numbers Talking Points
[1:03] Types of Valuation
- What is Valuation?
- Real Estate Valuation
- Business Valuation
[2:29] Bank Financing in Valuation
- Bank Financing
- Leverage Financing
- Covering Shortfall
[3:10] Different Buyers, Different Values
- Woman-owned, Minorities
- Contract stipulations
- Matching with your Ideal Buyer
[5:09] Timing and Seller’s Value
- Determining the optimal time to sell
- Finding a higher price for your business
- Finding the right culture
If you are ready to discover the value of your business, start by completing our complimentary business evaluation calculator.
The Importance of Bankability
The financial institution you should work with will depend on the size and needs of your company, and these may change over time. To secure the best banking partner, you need to know how these organizations look at you from a risk standpoint so you can optimize your business’s appeal. But you must also research which institution can best serve your lending goals. In this episode of Napkin Numbers, Scott & Rahsaan go over all the basics of bankability that will help you confidently secure credit.
Napkin Numbers Talking Points
[1:06] 3 Types of Banking Institutions
- National
- Regional
- Credit Unions
[2:34] Why Bankability Matters
- What is bankability?
- How do banks look at you?
- How can you best meet your lending needs?
- 5 C’s of Credit that banks use for risk management
[3:23] 3 Components of Financial Ratio
- Leverage
- Liquidity
- Coverage
[4:15] Leverage
- How to calculate it using debt and equity
- The ideal ratio banks look for
[5:16] Liquidity
- What it means and how to calculate it
- Comparing your current assets and liabilities
- The ideal ratio banks look for
[6:11] Coverage
- Are you making enough money annually to pay off your debt?
- Calculating your EBITDA
- Considering capital expenditures
- Ideal Debt Service Coverage ratio
[8:55] How to make your business a good risk
- Have a strong balance sheet and income statement
- Articulate your business plan effectively
- Be transparent
- Have strong advisors
[9:50] Common misunderstandings
- Getting help with start-ups
- Running a lot versus a little bit of money through the bank
- Pressure to show a constant profit
- Communicate with your banker
[10:36] 4 questions to ask your banker
- Finding a banker who can help your business grow
Finding the right bank for your business isn’t just about impressing lenders. Getting your finances in order and presenting a trustworthy, dependable image is important. But you also need to consider the best financial institution for your unique needs.
If you want to see where your company stands, try our free business evaluation calculator.
Flaws In Your Business and How It Can Impact Your Company When You’re Trying To Sell
When potential buyers look at your business, 4 main categories will entice them to make an offer or scare them away. When you know how to optimize these core elements of your business, you can set yourself up for success and boost your chances of a lucrative sale.
Listen in to learn how your products, workforce, industry, and customers can significantly influence your business’s appeal to interested buyers.
Napkin Numbers Talking Points
[0:55] #1 How flaws in your business can impact the selling process
- Products
- Workforce
- Industry
- Customers
[1:17] #2 Products
- Are your products diverse?
- What sets you apart from the crowd?
- If you have one product, are you properly highlighting it?
[2:21] #3 Workforce
- Is your team big enough to allow for scaling and consistency?
- Does labor limit you?
[2:51] #4 Industry
- Don’t forget about your competitors
- Take into account the unique risk factors of the industry you’re in
- Exit at a time when your industry is healthy
[3:48] #5 Customers
- How highly concentrated is your customer base?
- Do you have a few big clients or lots of smaller ones?
- What happens if your big clients leave when you exit?
By knowing exactly what potential buyers think when they consider purchasing your business, you take the power into your own hands. Use the tips in this episode as a cheat sheet to prepare for an easy and enjoyable exit. The bottom line: show buyers that they’ll be able to transition into taking over your business without a hitch.
Ready to take the next steps on your exciting journey to transitioning out of your company? Use our free business evaluation calculator.
3 Ways To Make Your Business More Appealing
As a small business owner, we understand that you’ve dedicated countless hours to building your company, and when it’s time to consider what comes next, chances are you will want to exit your company on your terms. This episode of Napkin Numbers delves into the three ways to make your business more appealing when preparing to sell.
Drawing from our combined 50+ years of experience, we share some real-world exit strategies that could pave the way for your next move, ensuring a seamless transition and reaping the maximum benefits of your hard work.
Napkin Numbers Talking Points
[02:29] #1 Automating Processes
- If your processes are only inside your head, that can translate to risk for a new owner.
- It is crucial to automate to reduce uncertainty and increase your business’s value in the eyes of potential buyers.
[02:08] #2 Strong Second in Command
- Having a strong second-in-command – not only shares the burden of managing the sales process but also reassures potential buyers about the continuity and stability of the business.
[03:01] #3 Keep things consistent
- Keeping things stable and predictable prevents employee turnover and supports critical contracts, facilitating a smooth transition.
To begin the sales process, you need to discover the value of your business. Get your complimentary business evaluation using Freeman Lundt’s Business Evaluation Calculator. Let Freeman Lundt’s experts guide you through the process and start by taking the first step with this complimentary evaluation.
The Importance of Owner Flexibility
You shouldn’t expect to sell your company overnight. For every company that sells quickly, there are a hundred that take many months or even years to sell. Having the correct mindset and understanding of what you must do ahead of time to prepare for the sale of your company will help you avoid a range of headaches and dramatically increase your overall chances of success.
First, and arguably most importantly, you must have the right frame of mind. Flexibility is a key attribute for any business owner looking to sell his or her business. There are many variables involved in selling a business, and that means much can go wrong. An inflexible owner can even irritate prospective buyers and inadvertently sabotage what could have otherwise been a workable deal.
Be Flexible on Price
A key part of being flexible is to be ready and willing to accept a lower price. There are many reasons why business owners may fail to achieve the price they want for their business. These factors range from lack of management depth and lack of geographical distribution to an overreliance on a handful of customers or key clients. Of course, one way to address this problem is to work with a business broker or M&A advisor in advance, so that such price issues are minimized or eliminated altogether.
Be Prepared to Compromise
In the process of selling your business, you may want to achieve confidentiality and sell your business quickly and for the price you want. However, the fact is that most sellers find that it is possible to have confidentiality, speed, and the price you want, but not all three. Ultimately, you’ll have to pick two of the three variables that are most important to you.
Be Patient
A third way in which business owner flexibility can boost the chances of success is to embrace the virtue of patience. By accepting the fact that businesses can “sit on the shelf” for a considerable period of time, you are shifting your expectations. This realization can help reduce your stress level. The fact is that stressed out owners are far more likely to make mistakes.
Sometimes Losing is Really Winning
A fourth way in which business owners should be flexible is realizing that you and your lawyer will not win every single fight. There will be many points of contention, and a smart dealmaker realizes that it is often better to have a good deal than a perfect deal. You may have to make sacrifices in order to sell your company. Simply stated, you shouldn’t expect the other side to lose every point.
At the end of the day, a savvy business owner is one that never loses sight of the final goal. Your goal is to sell your business. Seeing the situation from the buyer’s perspective will help you make better decisions on how you present your business and interact with prospective buyers. Maintaining a flexible attitude with prospective buyers helps to position you as a reasonable person who wants to make a deal. Goodwill can go a long way when obstacles do arise.
Copyright: Business Brokerage Press, Inc.
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The Main Street Lending Program
There is no doubt that the COVID-19 situation seems to change with each and every day. The disruption and chaos that the pandemic has injected into both daily life and business is obvious. Just as it is often difficult to keep track of the ebbs and flows of the pandemic, the same can be stated for keeping up to speed on the government’s response and what options exist to assist companies of all sizes.
In this article, we’ll turn our attention to an overlooked area of the government’s pandemic response and how businesses can use a whole new lending platform to navigate the choppy waters.
As the pandemic continues, you will want to be aware of the main street lending program, which is a whole new lending platform. It was designed for businesses that were financially sound prior to the pandemic. Authorized under the CARE Act, the main street lending program is quite attractive for an array of reasons. Let’s take a closer look at what makes this program almost too good to be true.
This lender delivered program is a commercial loan. Unlike the PPP, there is no forgivable component. However, the main street lending program does have one remarkable feature that will certainly grab the attention of all kinds of businesses. It can be used to refinance existing debt at a rate of around 3%. With that stated, it is also important to note that businesses cannot refinance existing debt with the current lender. Instead, a new lender must be found. Generally, loans are a minimum of a quarter million dollars and have a five-year term. In another piece of good news, there is a two-year payment deferment period.
The main street lending program can be used in a variety of ways. In short, the program is not simply for refinancing existing debt. Additionally, there is no penalty for prepayment. The way the program works is that lenders make the loans and then sell 95% of the loan value to the Fed. This of course means that the lender is only required to retain 5% of the loan on their balance sheet. The end result is that lenders can dramatically expand the amount of loans they can make.
Whether it is the PPP or a program like the main street lending program, there are solid options available to help you. Businesses looking to restructure debt or put an infusion of cash to good use may find that the main street lending program offers a very flexible loan with great interest rates.
Copyright: Business Brokerage Press, Inc.
The post The Main Street Lending Program appeared first on Deal Studio – Automate, accelerate and elevate your deal making.