When business owners are in the midst of building their own company, the end of the adventure may not be the first thing that they plan. Unfortunately, many business owners are caught without an exit strategy when the time comes to sell their business. It is important to prepare your business for a sale long before you even begin to consider leaving the company. This will also aid you in receiving the full value of your business when the time is right.

The following tips will help any business owner—new or experienced—utilize strategies for building business value throughout the years of management.

When you, the business owner makes the decision to sell his or her company, one of the first steps in the M&A process is determining the value of your business. This will assist the business owner in setting realistic goals as well as being able to present the business in a realistic manner to potential buyers. 

At George & Company, we typically use a combination of these various approaches so that we may arrive at the most accurate valuation figure. Depending on the type of business being appraised, the valuation methods will vary. The following list outlines some of the various appraisal methods that George & Company utilizes in order to evaluate a business to help the seller receive the most accurate portrayal of the position of the business.

An earn-out is a type of financing in which the full payout is deferred until the acquirer verifies the financial success of the business within a predetermined period of time after the closing date. It is a practical financial tool for an instance when a gap exists between the valuation price and allotted funding from the buyer. They can also be a very valuable tool when a significant client concentration exists or when the trailing twelve month’s financials are substantially above or below prior years. However, earn-out rewards may be difficult to measure when the deal involves merging two existing businesses. An earn-out is a more relevant financial option in an acquisition or divestiture.