COVID-19 has changed the way businesses operate, pushing many to abandon their formal offices for homes-based ones. Moreover, the pandemic has caused many to reconsider their priorities in line.
And with more than half of the nation’s 60 million small businesses owned by owned by people aged 50 or older, per the U.S. Small Business Administration, some entrepreneurs may be looking to sell or downsize their operations.
But before you replace that Open sign with For Sale, here are five things members of the American Institute of CPA’s Business Valuation committee suggest you consider:
• Is there a market for your business?
“Who would want to buy your business,” asks Kent Pummel, CPA, ABV. “That’s the most important question.”
Are your competitors interested in buying you out, would you sell to your employees, or could you pass the business along to family members? The value of the business depends on a variety of factors, and the sales price can vary depending on potential buyers.
• Are your books in order?
“You need good books and records,” says Josh Shilts, CPA, ABV. “This means your financial records should be clear and clean, detailing income, expenses and discretionary spending.”
It’s not uncommon for small business owners to intermix personal and business expenses. But those personal expenses would reduce the cash flow of the business and can make it seem to be less profitable than it is. So, it’s important to assure that financial records reflect only true business expenses.
• How attractive is your business?
“Like homes, businesses have curb appeal,” says Heather Tullar, CPA, ABV. “You need to look for weak spots or opportunities to enhance the appeal and value of your business.”
While many small businesses excel in special areas, there may be untapped opportunities or markets to expand operations or untapped capacity that could appeal to buyers. This exercise in self-awareness, which can be aided by a third party, can help enhance how attractive your business is to others.
• Is the timing right?
“Is NOW really the right time to sell or are there other factors or opportunities to enhance the business’s value?” asks Shilts.
While now may seem like a good time to exit your enterprise, there may be reasons or scenarios for holding off and using the coming months or years to greatly enhance the value of your operation.
• Have you enhanced the business?
Remodeling, upgrades, repairs or new systems can greatly increase the value of a business but have a negative impact on the bottom line. Pummel and Tullar say it’s important that business owners highlight expenditures that have increased a business’s future earning potential.
“If recent capital expenditures result in future savings, you should quantify them so they can be incorporated into the value,” says Tullar.
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Tags: Small Business
