You've poured time, energy, and passion into building your business. It's not just a venture; it's a part of you. If you're considering selling, you've no doubt asked yourself a monumental question: How do I ensure I get the best possible price for my life's work?
For many business owners, this is about more than just the numbers. It's about proper valuation and future dreams. This is where a third-party business valuation comes in. But can a professional valuation truly elevate your selling price? Here's everything you need to know.
What is a Third-Party Business Valuation?
As you begin to explore selling your business, you've likely heard of a third-party business valuation and its potential value. But what exactly is it?
At its core, a third-party business valuation is an unbiased, professional assessment of what your business is truly worth. While we can help you determine your business's value with a Broker's Opinion of Value, an independent third-party valuation gives deeper detail and includes multiple valuation calculations.
We strongly recommend a third-party valuation for businesses greater than $1,000,000 in annual revenue.
*We don't provide third-party business valuations, but we can recommend one of our trusted partners.
Here's a breakdown of everything a third-party business valuation will entail:
A financial assessment as evaluators take an in-depth look into your books. They'll look at income statements, balance sheets, cash flows, and more to understand your company's financial health and potential.
A market position analysis to see where your business stands out. Is it a leader, a challenger, or a small player? Valuations are about more than just the numbers.
A review of both tangible and intangible assets. This includes equipment, property, brand value, customer loyalty, and intellectual property.
A detailed look at operations. How well are processes managed? Are there potential areas of improvement or risk?
A third-party valuation is a comprehensive, holistic view of your business by an objective, independent company. It paints a picture of where your business is today while also eyeing potential future earnings and challenges. For sellers, it's a powerful tool that shines a light on true value and areas for growth.
Benefits of a Third-Party Evaluation
When it comes to selling your business, every decision counts. Opting for a third-party evaluation is a strategic move with several advantages. Here's a look at the benefits:
Objectivity and Credibility
The most significant advantage of a third-party valuation is its objectivity. Unlike internal assessments, which might be swayed by emotions or personal biases, these evaluations are impartial. When potential buyers see this neutral, professional perspective, it gives credibility to your asking price.
Spotting and Addressing Issues
Every business has its blind spots. A third-party valuation highlights areas you might have overlooked. By identifying and fixing these issues before listing, you're positioning your business in the best possible light. This can enhance its market value.
Confidence in Pricing
Determining your business's selling price can be a complex process. Too high and you might scare off buyers, while too low and you devalue your hard work. A detailed valuation gives you a clear benchmark, allowing you to price confidently and fairly.
Attract Serious Buyers
A business with a professional valuation signals seriousness and appeals to potential buyers. It indicates that you're not just testing the waters but are genuinely interested in a legitimate sale. This can filter out non-serious inquiries and draw buyers who value due diligence.
Debunking 4 Common Myths About Third-Party Evaluations
When considering whether or not you need a third-party business valuation for the sale of your business, it's important to understand the truths behind them. Here are a few common misconceptions and the realities behind them:
Myth #1: It's Too Expensive
Reality: While there is an upfront cost, consider it an investment. The insights and potential added value outweigh the initial expense. The cost of the eval also seems minimal compared to the potential risk of undervaluing your business.
Myth #2: I Know My Business Best and Don't Need a Third-Party Evaluation
Reality: While it's true that no one knows your business's intricacies better than you do, third-party valuations are objective. These valuations aren't about passion or history; they're about accurate data, market trends, and industry benchmarks. A third party brings an unbiased lens that can often spot things an owner might overlook.
Myth #3: Buyers Don't Care About a Third-Party Evaluation
Reality: As stated above, many buyers see third-party valuations as a sign of transparency and professionalism. It can speed up the negotiation process and provide them with confidence in their investment.
Myth #4: An Evaluation is a One-Size-Fits-All Process
Reality: A quality third-party valuation is tailored to your business. Different industries, markets, and business models require different approaches. A reputable evaluator will consider these factors and ensure the valuation is tailored to your business.
Once you've received your third-party valuation, you're armed with a wealth of knowledge. However, the journey doesn't end there. It's essential to leverage this information effectively as you move forward in the selling process. Here are a few key factors to consider:
Take the time to thoroughly understand the valuation report. If any part of it needs to be clarified, feel free to discuss it with the evaluator for clarity.
Identify the strengths and areas of improvement highlighted by the valuation. If there are specific weaknesses, decide whether you can address them before listing your business.
With the valuation in hand, determine an asking price. Remember, while it provides a benchmark, you should also consider other factors like market demand, recent sales of similar businesses, and your timeline for selling. A business broker can guide you through this process.
Use the valuation to guide your transition plan. Ensure the new owner can maintain and even enhance the business's value.
Ready to Begin Your Selling Journey with Confidence?
Third-party evaluations are more than just numbers on a page. They're a reflection of your hard work, passion, and the potential your business holds. As you begin the journey of selling your business, our team of experts is here to support you. We provide insights, expertise, and personalized advice tailored to your unique situation. Request a consultation or contact us today.