Buying a Business
Buying a business can be one of the most exciting moments! As such, you want to make sure you make the best decision and buy the right business at the right price. Below we discuss several aspects to buying a business and how a business valuation can help you during and after the process.
Determine a Purchase Price
One of the most critical points of purchasing a business is the purchase price. On average, the seller of a business sets the purchase price, leaving you to determine whether that price is fair. Fair is relative, but don’t you as a buyer want to feel confident that the purchase price is accurate?
On average, according to private databases we have access to like Deal Stats, the purchase price is about 10.0% lower than the negotiated value. That may sound like a wide range, but that means that half the transactions closed above and below 10.0% of the listing price.
These fluctuations are primarily driven by the perceived risk of the business and the true cash flow of the business. During the negotiation process, the buyer can challenge the value of the business based on the perceived risks and cash flow of the business. These concerns and risks can warrant a reduction to the purchase price. A business valuation can help you understand these and make sure the purchase price accurately reflects the value of the company. Peak, business appraiser Utah, is happy to provide a business valuation to evaluate the purchase price of a company.
Perceived risks in a Company can consist of:
- Product lines and marketing strategy
- Supplier relationships
- Management and personnel
- Industry factors
- Banking and financing relationships
As a buyer, obtaining a business valuation can help you understand the risks of the potential business. Not only does this help in the negotiation process, but post-transaction can help you determine your areas of focus. Understanding the risks and weaknesses of the business can help as you continue to build the business.
The cash flow of the business represents all cash flow produced through normal business operations. As such, any and all expenses ran through the business that are personal to the owner would be added back in order to arrive at true cash flow. The owner’s salary is also normalized to industry standards to understand whether the owner is being compensated above or below the market. A valuation expert analyzes cash flow to assess the overall health of the company. The value of a business is then measured by the perceived risk of achieving cash flow.
Make an Offer
Once you have a strong understanding of these factors, you have the option to accept the purchase price of the seller or make an offer below the purchase price.
If you make an offer below the purchase price, what are you planning to offer?
That is a hard question to address, but through understanding the value of the company you can support and defend the price you agree to with the seller.
As a third-party business appraiser Utah, Peak Business Valuation has worked with hundreds of buyers in your position. The reason they come to Peak is to receive an unbiased and certified valuation report.
Finance the Business
Once you find a business you want to buy, it is important to have adequate financing in place. Many opportunities fall through because there is not enough funding and/or the deal takes too long to close. There are a variety of funding options. The best option will vary and is based largely on your current financial situation. Some options include SBA loans, commercial loans, and seller financing. For more information see Financing a Business Purchase. For questions on financing, reach out to Peak, a business appraiser Utah.
Why use Peak Business Valuation?
Peak Business Valuation is considered the best business appraiser Utah and among one of the best business appraisers in the country. Below are a number of elements that set Peak apart:
1. Focus on Small Business
While there are dozens of types of valuations, Peak focuses on only a handful of valuation services. Peak primarily values small businesses with revenue between $500,000 and $10 million in sales. Due to this focus, Peak has worked with businesses in almost every industry in the United States. As such, Peak has the ability to demonstrate experience within the subject company’s industry. Check out our Google reviews which validate our expertise and client service. We are also happy to provide references for you to speak with.
2. Mission to Build Businesses that Thrive
Peak is more than just a business appraiser Utah. Our ultimate goal is to help businesses thrive. As a buyer, you are seeking to understand the value of the business you are looking to purchase. Throughout the valuation process and post, Peak seeks to keep active and open lines of communication. We want to be seen as an advisor for you. Peak Business Valuation wants to help you succeed and recognize your primary goals for purchasing the business. We are here to listen and help you build a business that thrives.
3. Business Value Drivers
When you are looking to purchase a business, it is imperative that you understand the value drivers of the business in addition to understanding the value of the business. As such, Peak is a Certified Value Builder. This enables Peak to provide consulting advice to business owners or buyers on how to improve the value of their business or your future business. If you are interested in this service, you can start the free assessment by clicking the link below.
4. Faster Turnaround Times
Lastly, Peak provides timely completion of any valuation engagement. Peak completes valuation engagements within 5 to 7 business days. For most valuation firms, the average small business valuation engagement takes between 10 to 15 business days to complete.
Ultimately, Peak wants you to feel confident in your decision to purchase a business. When looking to buy a company, be patient, often finding the right business takes time. As a business appraiser Utah, Peak has developed a system in which buyers not only feel confident in their decision-making, but feel competent that they can continue to build value in the business being purchased. Get started today by scheduling your free consultation below!