Growth Strategies to Maximize Your Company’s Valuation at Selling Time

During my first year a broker, we were called by a gentleman who was interested in selling his company. Since owners typically don’t want their employees to know that they are thinking about selling the company, we agreed to meet at a nearby coffee shop. I went to the meeting with a senior broker from my firm who had worked as a banker in a previous career and could quickly calculate the probable worth of a business in his head. The seller turned out to an elderly gentleman of about 65 – 70 who had started and built the industrial supplies wholesaling business over thirty years. After the three of us hadexchanged a few pleasantries, the senior broker jumped straight into the key questions. How much owner’s income is generated by your business? The owner replied “about $100,000.” The broker then asked him how much he had in inventory. About $500,000 was the reply. At this point the broker fell silent for a minute as he crunched the numbers in his head. Finally he spoke, “The best advice I can give you then is to sell the inventory off for $300,000 to $400,000 and then shut it down. You’ll get more that way then if you try to sell it as a going concern. At best you might expect a multiple of 1.5X or 2X on owner’s income.”

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