When you are selling a home, someone like Krist Neidhardt will talk to you about ways to increase its value. And if you listen to her on the Eye on Annapolis Daily News Brief, you know that she’ll even loan you the money to do some of the renovations, knowing that when the house sells, it’ll be a profitable decision for all included.
Now, would it surprise you to learn that you can do something very similar to help you sell your business?
And by that, I mean you can essentially “give your business a facelift” without hurting your asking price. Here’s how.
Pricing a Business
Business valuations are dependent on industry, size, and a few other factors. But, no matter how it’s priced, one-time consultant fees will NEVER factor in.
One way to price your business is a percentage of annual revenue. And since annual revenue is a number before expenses, no matter how many of those you have, your price point is not affected – although having too many ongoing recurring expenses will still scare off buyers. If you need help selling the business, it is worth considering enlisting the help of an experienced business broker who can provide guidance and advice to help you maximize the value of your business.
Another way to price your business is either as a multiple of Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) or Sellers Discretionary Earnings (SDE). Both of those are loosely based on the business’ overall profitability.
However, both also look at “add-backs” – which one-time expenses are. Meaning, let’s say you brought in a consultant like Patrick Lee with Chesapeake Think Tank to finally help you work “on” your business instead of “in” it. Even if it’s a multi-year engagement, Patrick will provide guidance and coaching to help get you to where you want to be and then step away from your business. Those are one-time expenses that will not be recurring after you sell your business – so we “add it back.”
Let us take a different example to compare it to. Let’s imagine that you sign a contract with Ann’s Social Media & Marketing to revamp your marketing efforts. And this effort had two parts to it – one was a one-time website redesign and one was ongoing monthly support to keep your social media feeds fresh. The website would be an add-back (it is a one-time expense), but the ongoing monthly support would not be. While both may absolutely be necessary, the recurring expenses cannot be added back because those expenses would carry over to the new ownership.
Big Take Away – Don’t Hold Off on Those Business Upgrades
While many of my clients do not exactly know how to price their business, it often does not come as much of a shock that it is based all or partially on annual revenue and profitability. But the idea of squirreling away extra cash to make yourself as profitable ahead of a sale, while not a bad idea, is not always the optimal strategy.
Consultants and other one-time expenses will set you back out of pocket, but they will not adversely affect your selling price. On the contrary, they will make your business easier to sell because it will make it more “move-in ready.”
Do you have questions about what is or is not a one-time expense? Then schedule a time to sit down with me and let us discuss your specific situation. You can schedule a 30-minute discussion with me by going to https://calendly.com/tworldannapolis/one2one or you can email me at [email protected].
