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EP Wealth Advisors
Thinking about selling your business? Learn how to assess its value, prepare for a sale, and position your company to attract buyers.
Selling a business is a major financial and personal milestone—especially when it marks the beginning of retirement. Yet owners can sometimes underestimate what it takes to prepare their business for sale, and the role valuation plays in shaping both the transaction and future financial plans.
Whether you plan to sell soon or in a few years, having a clear valuation strategy can help you understand your market position and potentially strengthen your negotiating power. Steps to consider when valuing your business include:
There is no single way to value a business—different approaches provide different insights, depending on the company’s industry, financial profile, and growth trajectory. Understanding which methods are most relevant to your situation is the first step toward a realistic and effective valuation.
This method calculates the net value of a company’s assets by subtracting liabilities from the total value of tangible and intangible assets. It’s often used for businesses with significant physical assets, such as manufacturers or real estate holding companies. However, it may undervalue businesses where intellectual property, brand value, or cash flow play a larger role.
The earnings multiplier method applies an industry-specific multiple to your company’s earnings—typically EBITDA or seller’s discretionary earnings (SDE). The multiple varies depending on factors like revenue consistency, market risk, and scalability. This approach is commonly used in service-based or growth-oriented businesses.
This method benchmarks your business against comparable companies that have recently sold. It’s helpful for determining market-based pricing expectations, but access to relevant, up-to-date data can be a limitation—especially in niche industries or private sales.
DCF projects your business’s future cash flow and discounts it back to present value using a required rate of return. This method is forward-looking and can reflect growth potential, but it requires detailed, credible financial forecasting and is sensitive to assumptions.
Buyers look well beyond the financials when evaluating a potential acquisition. A business’s operations, internal systems, team structure, and competitive standing all contribute to perceived value.
Some key factors include:
Identifying and addressing potential issues in these areas can help improve buyer confidence and support a stronger valuation.
Many factors often influence buyer perception—and ultimately, sale price. These value drivers may not appear directly on your balance sheet but can carry considerable weight in a negotiation.
Strengthening these value drivers in the months or years leading up to a sale may influence how buyers evaluate your company and their willingness to pay a premium.
Clear, well-organized financial documentation is essential to support your valuation and streamline the due diligence process. Prospective buyers and their advisors will review your records closely to verify performance and assess risk.
Make sure to prepare:
Financial clarity not only supports valuation accuracy; it helps demonstrate your professionalism and builds trust with potential buyers.
Beyond the financials, preparing your business for sale involves strengthening systems, reducing friction, and creating a more transferable operation. Buyers are more likely to pursue businesses that appear well-run and ready for transition.
Common pre-sale initiatives include:
Start by assessing how your business is currently performing. Strong financial results and positive growth trends can make your company more appealing to buyers. At the same time, consider what's happening in your industry—rising demand, favorable valuation multiples, or active buyer interest can signal that the market is receptive.
Economic factors also play a role. Low interest rates, for example, can make financing more accessible to buyers, potentially leading to more competitive offers. You’ll also want to consider how your sale aligns with the tax calendar, as the timing within a fiscal year could affect your net proceeds.
Bringing all these elements together—your company’s trajectory, industry conditions, the broader economy, and tax implications—can help you decide not just how to sell, but when the timing might work to your advantage.
Selling a business involves tax implications, especially regarding capital gains, depreciation recapture, and income structuring. Retiring owners must also consider how these proceeds fit into their personal and estate planning.
It's important to think about:
Coordinating with advisors who specialize in estate planning services can help you navigate these issues and align your exit strategy with long-term financial goals.
Business valuation is not a one-size-fits-all calculation—it’s a process that benefits from specialized guidance, real-world insight, and cross-disciplinary expertise. Partnering with professionals who understand valuation, taxation, and strategic planning can help you make more informed decisions and better prepare for the road ahead.
Advisors can assist with:
At EP Wealth, our business planning professionals help clients navigate each stage of the process, from pre-sale assessment to post-sale transition planning. Contact us today to learn more about our services.
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