Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
UPSIZE STAGES: EXIT STRATEGIES
03 :: Figuring what it?s worth
Valuation methods vary,
but all have goal to
estimate price tag
Because they are too close to the business and because they are focused on growing their company, qualified business brokers say owners frequently don?t have a very good hold on what they could get in a sale.
They frequently shoot way too high or way too low, and that is why it?s important to work with a qualified broker or valuations expert who knows how to evaluate a company?s worth and how to manage a seller?s expectations.
If a seller is looking three to five years in advance of their retirement or planned sale, there isn?t a need to get a full-blown appraisal ? that could cost $5,000 to $10,000. But the owner might want to get an opinion from a CPA, attorney or broker so they know if a sale would be in the range of what they would be looking for or if they need to take steps to increase the value before pursuing a sale.
While the true value of a business really boils down to whatever a buyer will spend, there are many methods for evaluating roughly what a business is worth.
One is an asset business valuation. That takes into account the value of assets, such as inventory, equipment and real estate. It works best if you are looking to liquidate an unprofitable business. It?s popular but doesn?t always reflect the total value of a company because it can leave out what businesses do with the assets and also doesn?t measure intangibles, such as goodwill.
A market business valuation sets the value based on a multiplier, such as some amount multiplied by sales. Its accuracy is sketchy, however, as it bases the value on industry averages.
Income or earnings-based valuations do not distinguish between tangible and intangible assets and cannot predict future earnings or discounted cash flow. But the method works well for valuing companies with strong intangible assets using historic earnings.
A more complicated model takes into account discounted cash flow and projections for future earnings. Some experts prefer this method for companies that have been profitable.
Many Web sites, such as www.valuationresources.com, can help small-business owners determine what method is most appropriate for their companies, as can their team of advisers.
Other factors play into what a business will go for. An owner and team will take a look at what similar competitors have sold for. Typically, however, when a company goes on the market, a broker won?t put a price tag with it.
They?ll put together a confidential package announcing the company is for sale and see how the market reacts. The document will explain the past and sell the future. Then interested potential buyers will likely sign a non-disclosure form that entitles them to see some more delicate information about the company to aid in their decision.
One important rule of thumb is to base the value of the business on the current market conditions. If the market is down, companies often tighten their belts and generally the business will be worth less.
As the name suggests, Owatonna-based Kamp Automation looks for customers with a process they’d like to automate. It could be a small, inconvenient, tiny part that people can’t assemble. It could be a high-volume product so needed that the customer can’t find enough labor to produce it in the necessary quantities. “We’ll work anywhere from medical device companies to the seed industry for corn and soybeans,” says Kent Patterson, co-founder, president and CEO. “We just jump all over wherever there is custom automation.” The company started in his garage. Patterson and his partners built a machine. The company started to grow to the point where now it has 48 employees — and had a bunch of people and stuff in different locations. “We went from a garage to a shop to a shop and just kept moving to new places and signing leases,” he says. “We got to a point where it’s like, OK, this is getting big enough and sustainable — we felt that we wanted to look for our own space.’”
