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How to Finance a Business While Minimizing Debt Risks
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Thinking about selling your business? Learn how to assess its value, prepare for a sale, and position your company to attract buyers.
How to Value Your Business Before Selling
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:
- Determine which valuation method best fits your business model and industry
- Assess operational performance, leadership structure, and market position
- Identify key value drivers that may increase buyer interest
- Review and organize financial records for clarity and credibility
- Review and organize non-financial documents (e.g. operations manual, staff handbook)
- Address any internal inefficiencies or potential buyer concerns
- Analyze market conditions and determine appropriate timing for a sale
- Consult with advisors who understand valuation, tax implications, and exit planning
Business Valuation Methods
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.
Asset-Based 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.
Earnings Multiplier
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.
Market Comparison
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.
Discounted Cash Flow (DCF)
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.
Business Health Assessment
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:
- Operational efficiency: How well do internal processes support scalability?
- Owner involvement: Is the business heavily dependent on you personally?
- Customer concentration: Are revenues spread across a broad base of clients, or concentrated with a few key accounts?
- Leadership and team strength: Is there continuity in management that will remain after the sale?
- Market positioning: How does your business compare to competitors in terms of reputation, pricing, and innovation?
Identifying and addressing potential issues in these areas can help improve buyer confidence and support a stronger valuation.
Key Value Drivers for Businesses
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.
- Recurring revenue: Subscription-based or contract-driven income can make your business more attractive and predictable.
- Intellectual property: Proprietary products, patents, or unique processes can create competitive advantages.
- Strong customer relationships: A loyal and diverse client base lowers buyer risk.
- Scalability: Systems and processes that support growth signal future earnings potential.
- Low reliance on owner: Businesses that run smoothly without daily owner involvement are typically easier to transition.
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.
What Financial Documents to Prepare Before Selling
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:
- Profit and loss statements (preferably for the last three years)
- Balance sheets and cash flow statements
- Business tax returns
- Schedules of debt obligations, leases, and liabilities
- Key vendor, supplier, and customer contracts
- Payroll and benefits information
- Notes on discretionary or non-recurring expenses (e.g., owner salary adjustments)
Financial clarity not only supports valuation accuracy; it helps demonstrate your professionalism and builds trust with potential buyers.
Pre-Sale Preparation
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:
- Streamlining operational processes and documentation
- Upgrading outdated systems or infrastructure
- Resolving outstanding legal, HR, or compliance issues
- Formalizing contracts with key clients, vendors, and partners
- Reviewing marketing and customer engagement strategies
- Identifying key personnel and considering succession plans
When Should You Sell? Key Timing and Market Factors to Consider
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.
Consider the Tax and Estate Planning Implications
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.
Working with Professionals to Guide the Valuation Process
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:
- Providing an informal valuation of a business
- Connecting with a valuation professional
- Coordinating with legal and tax professionals
- Structuring the sale in a way that supports your personal goals
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.
DISCLOSURES
- EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.
- Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings / checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.
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- Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.
- EP Wealth Advisors (“EPWA”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. All expressions of option are subject to change without notice.
- An estate plan is a helpful tool that can assist individuals in managing and arranging affairs in the event of death or incapacity. However, the scope and extent of the plan varies depending on the unique circumstances and desires of the individual client. It is for this reason, that the analysis encompassed herein is not intended to be comprehensive in nature nor should it be interpreted as legal advice. Please consult a legal professional to determine the extent, scope, and the drafting and creation of the appropriate estate documents. EP Wealth Advisors is not in the business of providing legal advice or preparing legal documents. Our review is limited to and in association with Financial Planning only.
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