How to sell a company
- Is valuation critical to selling a business?
Do you know how much your company is worth? How can you value it in the future?
At present the businessmen are unaware of the real value of their company or the possible prospects that exist for their rapid valuation.
There are numerous factors that influence the process of buying or selling a business.
Usually entrepreneurs develop a very strong emotional relationship with their own businesses, and in selling a company. It is as if they are a single part of their own lives. What though understandable has negative consequences the time has come to sell a company.
Buyers face the acquisition of a company with great objectivity. They intend to have their economic and financial performance and the markets in which they operate evaluated.
For this reason, it is essential for companies to use specialized consultants to know the value of their business or company. Important information also to sell a company.
There have been many methods recommended by the authors to carry out the evaluation of companies. But most of them are questioned in terms of their timing, accuracy and objectivity.
Hence it is normal for consultants to make the most careful and objective analysis possible. They prepare the appropriate technical studies. These studies contribute to assessing possible future development scenarios for the company. As well as the general lines of strategic action.
It is normal for a specialized consultancy to begin the assessment with a survey of general data about the company, the business and its surroundings. A brief objective audit is carried out.
Then, the necessary financial studies and projections are carried out to correctly evaluate the company using the simultaneous use of several techniques. As a way to reconcile and obtain a more correct and approximate value for the business.
Cash Flow Method
Among the techniques most used to evaluate companies or brands, the discounted cash-flow method is arguably the most accepted.
It is always important to consider the company within the context of your industry and do a simulation of results. In practice, at least three scenarios are used: optimistic, more likely and pessimistic.
We recall that by this method, the company is evaluated as follows: First, we forecast the cash flows generated by the company in a period that normally is around the 10 years.
Secondly, we will determine the appropriate opportunity cost of capital. This has to reflect both the time value of money and the risk associated with the business and therefore the company.
Third, we use this opportunity cost of capital to discount the future cash flows generated by the company (the sum of discounted cash flows is called the present value). And, finally, the value of the company is calculated at the time of the evaluation.
To use this method, it is necessary to know the ways and conditions to sell a company, the cost structure and the distribution system of the company under analysis. For better determination of sales revenues as well as associated costs in generating them, ie their operating expenses.
A careful and rigorous analysis of this set of factors allows us to better determine the financial flows of the company and therefore its value.
Other Methods for Company Assessment
In a different context, real options are used for indebted or resource-limited companies or limited information. This method is not always accepted or understood. But it allows the evaluator to compare it with the results obtained through the Discounted Cash – Flows method.
In Portugal, the multipliers of EBIT or EBITDA are very difficult to adopt. On the other hand, timely access to sectoral statistical information and data is difficult. Thus, it is common, it is advisable to use these multipliers for reference only.
Another method adopted whenever the situation allows is the value of the share price.
In addition to the data calculated through the various methods it is important to evaluate possible synergies between the buyer and the seller. So that it can improve the evaluation in order to bring more success to the sale of a company.
However, it is rarely possible to quantify several subjective factors between the purchase and sale of a company. But it is important for the outcome of an evaluation and the resulting negotiation between the parties to be effective.
Mercal has a methodology that attempts to harmonize all existing methods. Mercal can help you through the entire process of buying and selling a business.