Friday, November 30, 2012
How to price a business
How to price a business, or how to sell a business, may present a problem that is difficult to correct unless you take a certain step beforehand. Here's what led up to this post:
I just spent an interesting afternoon chatting with John Coto, a highly-recommended business broker in New England. We were discussing the future sale of one of my sidelines (especially how to price the business) and John brought up a subject I’d not even thought about before.
“Between 90 and 95 percent of all the sellers come to me with the same problem,” he said.
Can you guess what that problem is?
The problem is how to prove to the prospective buyer what the true income of the business is, when the seller has been cooking the books for years. This is especially true when the business, such as a Laundromat, a restaurant, or a bar, has a largely cash income. “Some of these guys,” says John, “are skimming up to half the profits. I tell them I can’t help them get paid for what they do not report.”
Are you planning to sell your business some day?
If so, why not start declaring the true income? In such a case, the buyer may not believe the tax returns and might falsely assume you are making even more money, and will therefore be quite anxious to buy!
Another advantage is that you will sleep better at night. Trust me on this one!