Many business owners wonder how much their business is worth and how they stake up against their competitors.
When talking about buying and selling companies, many business owners get caught up in the purchase price, when the real number they should be focused on is net proceeds. The “net proceeds” of the sale refers to the cash the owners get at the close after taking care of all expenses, such as investment banking and transaction fees, accounting and legal fees, debt from the business, holdbacks and earnouts, seller financing and, of course, taxes.
Although the net proceeds number is critical to determine what your business should sell for, it is only part of the equation. Net proceeds help establish the three financial gaps in your life. Those gaps are the solution to deciding what your business must be sold for in order to live a fulfilled life after exit.
The Three Gaps:- Wealth Gap
- Profit Gap
- Value Gap
So, what should you sell your business for?
When it comes time to sell your business, ask yourself the following questions:
• What do I want to do after I sell? And do I have the money to do it?
• What are the best-in-class businesses in my industry worth? How far is my business from that profit?
• How valuable is my business if I sold today? Would I get a high multiple if I took it to market right now?
Selling your business involves a lot of strategy, advisors and planning. But without considering your personal goals as well as business value, you will have a hard time determining your ideal sale price.
