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Valuable Answers to Your Business Valuation Questions

13 Mar

The owner’s role in maximizing selling price

Posted in General valuation topics on 13.03.11

The questions was posed to me recently whether a business would sell for more if the owner sold it before he moved away. The owner plays an active role in the business.

The answer, which seemed obvious to me, may not be so obvious: Yes, the owner should sell it while he is still active and available to ensure an orderly and smooth transition to the buyer.

An orderly transition is usually worth something to a buyer. A buyer will be taking over the business with the expectation of being able to continue operating (and generating income) from the business. To the extent that the seller can transfer his/her knowledge to the buyer, the more likely it is that the business operations will transfer smoothly.

If the business is sold without the owner (or a competent manager) in place, the new owner will have to figure things out. Information about key vendor relationships may not be documented. Nuances about customer preferences may not be written down. Even information about employee policies may not be documented adequately.  If the business “operations” are not transferred, the buyer is merely buying the assets of the business.

How a business runs is what enables it to produced cash flow – and cash flow translates to value (and selling price).  Usually, the better the quality of operational information that transfers, the smoother the transition.  Bottom line: successions plans, which include an orderly transition in a sale, add value to a business.  If you know you will be retiring, relocating or otherwise leaving the business, consider making sure that you allow time to sell/transfer the business so that you can be to ensure a transition to maximize the selling price.

If you have questions about this or other valuation matters, please contact me.

©2011 Florida Business Valuation Group


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