Local small business owners learn how to prepare a business for sale

Sunday, November 6, 2016

By Brenda Kohlmyer

On Tuesday, local small business owners attended the second of three Quick Start Shoreline working sessions providing information on preparing business valuations prior to selling or as part of a business loan application.

The lunch meeting was part of the ongoing Quick-Start series held at Shoreline City Hall, 17500 Midvale Ave N the first and third Tuesdays of the month.

Bryce Hansen, the owner of Hansen Business Advisory in Shoreline, conducted the session and noted that small business owners frequently find the process of valuing a business very challenging and emotional. Far too often a decision to sell, or the need to provide a valuation prior to a loan application or divorce settlement, comes at the last minute.

This may not be timed at the top of the business’s market cycle or may come during a general economic slowdown. These and other outside factors can impact the valuation of a business. 

However, Hansen told the group that there are still many things business owners can do well in advance of a valuation that will help them get the best chance of an accurate and fair price for an enterprise they’ve spent a lot of time building.

The process of valuing a small business should begin three to five years before a valuation is done because valuation experts routinely ask for financial statements covering the previous 5 years and business projections for 3-5 years in advance.

Small business owners and their financial advisors can mitigate the effects of a last-minute valuation by acting early to, as Hansen notes, “take out the fluff” items such as car loans for personal use, the cost of one-time fees, excessive travel, or the occasional boat written off as a business expense for an land-locked company. While there may be tax benefits, optional expenses can reduce the company’s bottom line, and therefore its ultimate valuation.

Besides the company’s balance sheet, valuations also take into account discounts and premiums or whether a purchaser would have a controlling interest in the organization, the company’s overall marketability, known valuations of similar companies, and potential risks associated with the business or its operating space.

The sheer number of factors that contribute to a complete valuation make the process an inexact science, however, professionals use proven valuation approaches that can help owners and sellers gain confidence that a negotiated price would be equitable for both parties.

Hansen also noted that, while the field of professional business valuations is relatively new, beginning only in the 1960’s and really taking hold during the savings and loan crisis of the 1990’s, there are several reputable organizations certifying appraisers including the American Society of Appraisers (ASA), and Institute of Business Appraisers (IBA) and the organization to which Hanson belongs, the American Institute of CPAs (AICPA).

The third working session in the series will be held on November 15 and interested small business owners can contact Tiffany McVeety with the SCC Business Accelerator via email at accelerator@shoreline.edu.
Brenda Kohlmyer is a freelance writer working in Snohomish and King counties. She is a frequent contributor to BrandVisionary.com. This is her first article for the Shoreline Area News.


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