Business Succession Planning - Part 6
My name is Tom Schumacher. I am a business lawyer for Bakke Norman Law Offices.
We have offices in Menomonie and New Richmond, Wisconsin, from which we primarily serve an eight county area in Northwestern Wisconsin.
This is the final segment in a series of videos regarding business transition planning. In order to sell a business to third parties, key employees or transition to the next generation you need willing parties on both sides of the transaction that have the ability to complete the transaction at an agreed upon price.
So how is a price determined? You as an owner can simply decide on a number at which you are willing to sell and search for a buyer who is willing to pay your price.
As an owner, your view of the value of the company is subjective and may or may not have included considerations that the marketplace will use in determining a price and if there are willing buyers.
An objective valuation of a business is an important step in the transition process. The valuation begins with choosing a valuation professional who preferably has a familiarity with the industry for your business.
Your attorney, banker, accountant or financial advisor generally can provide you with referrals to experienced individual valuation experts.
The critical information necessary for the valuation of a business is its financial records. This includes three to five years of financial statements, including the balance sheet, income statement and cash flow statement. You would also provide three to five years of income tax returns. The valuation professional will utilize this information along with industry information in arriving at a value.
Buyers who are interested in purchasing a business generally will look at revenue to determine if it is increasing or decreasing. They are also interested in EBITDA, which is an acronym for earnings before interest, taxes, depreciation and amortization. Working capital is also a key component for a buyer.
Accurate financial information and the analysis of the financial information is the basis for any business valuation.
Thanks for viewing this final segment on business transition.
The other segments on goals, putting together an advisory team, entity selection, maintenance of business records and timing of the business transition can be found on our website: www.bakkenorman.com .