Buying or Selling a Business

There are different types of value, referred to as standards of value. Most people are familiar or have heard of fair market value. For the purchase or sale of a business or business interest, investment value may be the most appropriate. However, value does not necessarily equal price.

Price is a negotiated amount at which a transaction takes place. For this reason, many buyers and sellers choose not to engage a professional to value the business interest for a transaction. Under most circumstances, incurring the cost and spending the time for a valuation engagement is unnecessary for a transaction.

A valuation professional may be able to provide assistance to either party in a transaction. Areas where the valuation professional’s expertise can help the buyer or seller negotiate the price are:

• Market research
• Financial analysis
• Industry insight
• Reviewing agreements for economic considerations
• Evaluating the economic impact of the deal

While the actual price is important, it is also important to make sure that you can afford the deal.  Will you have sufficient cash flow to meet your needs when the deal closes?  Buyers have to consider the working capital needs of the business as well as how they will fund the cost of buying the business.  Sellers need to make sure that they can replace the cash flow that was coming from the business with the proceeds while preserving their capital.

Additionally, deal terms can be important part of the transaction and are often not considered in the valuation process.  These can include:

• Consulting agreements
• Covenants not to complete
• Seller financing terms
• Bonuses based on future profits
• Balance sheet adjustments at closing

We can assist you in evaluating whether the deal you are considering meets your investment criteria.

If you are involved in a transaction, call Marcie Bour at 954.232.0760 or email marciebour@floridabizval.com for more information as to the services available.