Business Valuation to Buy a Business
One of our favorite groups of people to work with are individuals looking to buy a business. As a valuation firm, we love adding as much value as we can to these individuals. While getting a business valuation is not necessary to buy a business, there are several added benefits to the buyer.
1 – Increased Confidence in the Purchase Price
For most buyers, a business valuation can give you a sense of relief and confidence. It allows you to feel confident in the price you are offering in a letter of intent. We go through the numbers and dig in to help you understand from a valuation standpoint if the purchase price is supported by the business.
2 – Second Opinion of the Value of the Business
We are there for buyers to be a second opinion. But, more importantly, we act as a partner with the buyer. We help them understand the value of the business. When it comes to the purchase price, a broker often dictates the price of a business. In some situations, the seller or broker is thinking, let us see how much we can get for it rather than a realistic range of value.
Based on data from deal stats and other private transaction databases, the average difference between the asking price or the initial purchase price and what the business closes at is around 10 percent. That is a 10% decrease. For most businesses, 10 percent can be a huge difference.
That is where a business valuation can be most useful. Peak Business Valuation, business appraiser Utah, assesses the business. We look at the numbers, including qualitative factors and materials. Using this analysis, we can then determine a range of value for the business and help you as a buyer understand that value.
Sometimes the value comes in lower than what the asking or listing price is. And sometimes it is higher. Either way, a business valuation can help you understand the various aspects of the business including financial, operational, technological, and procedural. Peak will seeks to help buyers by identifying opportunities to increase the value of the business.
3 – A Business Valuation Provides Negotiation Power
A large part of buying a business is doing proper due diligence. Part of the due diligence process includes a business valuation. Like we mentioned above, a business valuation can give you a second opinion of the value of the business. This opinion can then help you during the negotiation process. For instance, let us say a business is listed at a million dollars and the valuation comes in at $900,000. This is roughly a 10% decrease. Negotiating a business is much like negotiating the price for a house.
A seller often has a lot of emotions for their business as they put a lot of blood, sweat, and tears into growing their business. When it comes time to sell, some individuals are not as ready for the change. Many sellers have remorse and wish they did not sell post-closing. Going from 12-16-hour days to sipping a Mai Tai on the beach sounds nice but can be quite the change.
As a buyer, showing empathy and understanding is important when negotiating a purchase price. The seller has a price at which they feel their business is worth. The broker may have an ideal price as well. There are many strategies for negotiating a purchase price. For buyers, you want to put forth the best case on how you will keep the legacy of the seller alive. Having a business valuation can also help you understand the strengths and weaknesses of the business. When creating your argument, having strong facts to support your case is important. Peak Business Valuation can help you identify items that impact the value of the business. A professional valuation can give you a credible second opinion of the value of the business.
There are also several strategies for structuring the business purchase. Various methods can help bridge the gap between what the buyer offers, and the seller wishes to get for the business. For instance, a seller note or earnout can help the seller get more for the business as it continues to grow. Notes or earnouts can also help the buyer be able to better afford the business or obtain financing such as an SBA loan. When Peak Business Valuation, business appraiser Utah, works with buyers we try to educate them on a few different angles to approach negotiating the purchase price. We do our best to provide ways and strategies for you as the buyer to be successful.
4 – Financing through an SBA Loan
Last, if you are buying a business and looking to then transact, you will need to finance the deal. Unless you are an all-cash buyer, one of the best programs to work with is an SBA loan. An SBA loan typically requires the buyer to put 10 percent down. SBA loans have excellent terms with low-interest rates and competitive term lengths. One of the requirements in the standard operating procedures for lenders is to obtain an independent, third-party business valuation. Peak Business Valuation, business appraiser Utah, works with lenders across the country. We provide valuations in nearly half the time of our main competitors to help close your loan faster. We are happy to help connect you with an SBA lender that meets your needs and lends to your business industry.
Peak Business Valuation is here to help you buy a business with confidence. And to help you understand what to do with the knowledge of the value of the business. We are here to be an advisor and partner and see you succeed.
If you are looking to buy a business and have questions, please reach out! You can schedule your free consultation by clicking the link below. We look forward to working with you and wish you the best in buying a business.
Schedule Your Free Consultation Today!