Aspects to evaluate your Company's worth prior to a sale
This month we asked tech founders and CEOs for their take on how to value a company prior to sale. We found the perspectives thoughtful and good for setting baseline expectations. In our experience with over 21 M&A transactions, getting the best outcome requires finding multiple strategic acquirers and creating a competitive situation. Why? Because a strategic acquirer is willing to value the business on the future potential of the combination. For example, your product sold to the acquirers customers and marketed through expanded channels. Running the right process is critical to identifying all strategic buyers and create a competitive bidding process.
To provide you with valuable insights into assessing a company's value before selling it, we've gathered tips from founders, CEOs, and other business leaders. From examining the cash flow to evaluating the company's future potential, these insights offer a comprehensive guide to business valuation.
Conduct a Comprehensive Business Valuation
Evaluate the Company's Future Potential
Examine the Cash Flow
Utilize Appraisals and Understand the Market
Evaluate Financing Alternatives
Conduct a Comprehensive Business Valuation
From my professional experience as a CEO, one valuable insight for assessing the value of a company before selling it is to conduct a thorough and objective business valuation. A proper business valuation is critical to understanding the company's financial health, market position, and growth potential, which are all factors that influence its overall value.
To perform a comprehensive business valuation, it is essential to consider both quantitative and qualitative aspects. Quantitative factors include analyzing financial statements, cash flow, profitability, and tangible assets. Understanding the company's historical financial performance and projecting its future earnings potential is crucial in determining its value.
On the other hand, qualitative factors encompass elements such as market share, customer loyalty, brand reputation, intellectual property, and the strength of the management team.
Sai Blackbyrn, CEO, Coach Foundation
Evaluate the Company's Future Potential
When assessing the value of a company, it's important to look beyond the current financial performance and consider the company's future potential. This includes factors such as the company's growth prospects, its competitive landscape, and the overall economic environment.
Brenton Thomas, CEO, Twibi
Examine the Cash Flow
In my years of navigating the financial labyrinth, I've found that assessing a company's value is much like appraising a vintage car. You can't just look at the shiny exterior; you have to pop the hood and examine the engine. The financial statements are the engine of a company. They reveal the true health beneath the glossy surface.
My golden nugget of advice? Don't just focus on the current earnings. Instead, delve into the cash flow. It's the lifeblood that keeps the company's heart pumping. Earnings can be manipulated with accounting gymnastics, but cash flow is a stark, unvarnished truth. It's the oil that keeps the engine running smoothly.
So, before selling, ensure your cash flow is healthy and consistent. It's the key to unlocking the true value of your business.
James Allen, Founder, Billpin.com
Utilize Appraisals and Understand the Market
Assess the value of your company impeccably before selling it to avoid leaving money on the table. Utilize appraisals to set your initial price and wait for the appraiser to determine an approximate value for your business. The right price for your company is crucial.
Once appraisals are received, set the price slightly above the top end of the price range to allow room for negotiation. If time is a constraint, set the price close to the actual worth of the business to expedite the negotiation process.
It's also important to understand the current market for your business. Research the correct value for the business you run. Analyzing appraisals and setting the right price for your company is key. Consider what factors are important to buyers as they are the ones setting the particular price for your company.
Saikat Ghosh, Associate Director of HR and Business, Technource
Evaluate Financing Alternatives
If your company still needs financing to grow, you are faced with the decision of whether to raise additional capital vs selling. Financing involves further dilution with the opportunity to create higher value with future growth. Based on financing offers, you can weigh the relative value of ‘putting more chips on the table’ vs cashing out.
As a CEO who has sold several technology companies, nearly every time we faced this crossroads decision. Sometimes we decided to double down, and often we decided to sell given the company had created significant value to shareholders and employees. Of course, there are many other factors to consider in this decision.
Tom Loutzenheiser, Partner, NextPath Advisors