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Monthly Newsletter from TopGun Consulting LLc

"Making It" In America
A Monthly Newsletter for Manufacturing Companies
November 2013  Volume 2-Issue 11
"Want to Buy My Company?"

(Some Tips and Insights into the Valuation Process
)

 
When I hear this from a business owner, I suspect what they really want to know is how much you’ll pay them for it. The problem is that many owners have only a vague idea of how much their company is worth and will actually get quite upset if you run a number by them that isn’t what they had in mind.
 
What these owners don’t know is that there are very simple but detailed methods to determine the value of a company. The other fact is that the buyer will most likely be going to a bank for money and they also will be using these methods to value the business. It doesn’t matter that you clean the shop every week or that you just painted the walls. Great job but in the financial world they only look at the books for the initial value. Only after the offer is accepted and the due diligence starts will any weight be given to aesthetics and other subjective matters.
 
 
So what are buyers and banks looking for?
 
  Cash Flow. Or as they put it, SDCF. (Seller's Discretionary Cash Flow) With the net income in hand, they’ll add back the taxes, depreciation, interest and seller specific expenses to get the SDCF number. This number is then multiplied by an appropriate “multiple” to get the “value” of the company. Where does this multiple come from? It is determined by the value that that industry is worth to a prospective buyer. Right now I’ve heard that multiples are about 1-3 for manufacturing companies.
 
Other investors use EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) times a higher yet reflective number that should give about the same number as just using SDCF.

Click on the video link below to see how the process works!



If you've made the decision to sell you business, hopefully you'll get an offer at or near your estimated value. After some negotiations and a final offer is made and accepted, then the fun begins. The buyer looks at all kinds of factors like the value of the equipment, EPA issues (if any), personnel, real estate, book of business by customer, contracts and much more.
 
Should any of these reveal potential problems, the value of the company will be reduced, in many cases significantly. Sellers should not be surprised when these issues come to light even though you may feel that they are not material. Remember, it's personal to you, it's strictly business to them.
 
You Can Increase The Value Of Your Shop!
 
    It behooves you, as a potential seller, to anticipate what a prospective buyer would be looking for and correct issues that would otherwise devalue the ultimate sales price. You might even find that the value would go up if you’ve made sure that the SDCF  can be maintained and even increased!
 
I’ve simplified the process a bit but you can get a rough idea of what your company is worth. For a more detailed explanation or ways you can improve your company prior to offering it for sale, give me a call to discuss your situation.
___________________________________________________
 
  • Check out our new "Exhaust Notes" video using the link under the picture of my 1967 Chevelle to the right. In this month's video, I talk about why getting a start on  your "transitional planning" is vital to the continuation of your business.
  • To check out our rest of our videos including the "Profit Power" video series, click on this link. Click Here for Videos   In the coming months, look for more and exciting content that will surely help you improve your business in this very competitive industry.
  • Please feel free to explore my website at www.topgunconsulting.com and see how we can help you improve your efficiency and get you on the road to higher profits and greater success!

I look forward to talking with you soon  at 602-510-5998 or email me at david@topgunconsulting.net 

David Senkfor
Your Profit Driver

 
"It’s a Great Time to be in Manufacturing!"

Tip of the Month:

 
Call your CPA and corporate attorney to start or review your current estate planning.

If you are thinking of transitioning the company by adding owners/partners, changing ownership to next generation family or employees or are thinking of selling the business outright,  you will need to get a complete valuation done and hire a sales advisor to maximize your sales offers.


    David Senkfor
"Your Profit Driver"
Exhaust Notes
1967 Chevelle "SS" Coupe
Click here for the video
November 2013
 
Read my latest article in Gear Solutions magazine about some "Horror Stories of Costing"

Whole magazine link:
Click Here

Just the article link:
Click Here



Read the May 3,2013 article from the Arizona Republic in which David Senkfor is quoted regarding the current state of manufacturing and job training in the local and national markets.

Please click here for the article
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