New Jersey Business Brokers: Article About Things That Can Impact Business Value
When it's time to sell your business, you may think that only tangible assets are valued. Potential buyers are also interested in goodwill which is the intangibles of your business. Unlike equipment, the value of goodwill is harder to determine. Before you market your business, understand how goodwill affects your business value. Our New Jersey business brokers will help you determine how much goodwill you have in your business, how profitable your business really is and if your customer base appears attractive to buyers.
There are two type of goodwill. Personal goodwill is the intangible assets that surround you personally and cause your business to prosper. Personal service industries such as doctors, lawyers, dentists, insurance agents, architects, interior designers usually have considerable personal goodwill. People patronize these businesses because of the person providing the service. When deciding to sell your company, consider if the established goodwill is from the business and the services offered or if it exists because of the personal relationships you established with customers, suppliers, and others.
Business goodwill can be trademarks, leases, and patents that can be transferred with the business, but are still technically intangible assets. Both personal and business goodwill work towards increasing your business worth, although your business goodwill may make your company more valuable than your personal goodwill. It takes time to build up goodwill, so if your ultimate goal is to sell your business, you should discuss a business strategy with your adviser.
Profit is the ultimate goal of any business. Without profit the chance of a business surviving is slim to none. Profit is determined by looking at income and expenses. When money is made from the sale of a product or service, that money is considered income. When money is brought into the business through a loan it's not considered income and does not count towards the total profitability of your business. Expenses are then considered and deducted from your total income to determine the amount of profit your business makes each year. Your accountant or business adviser will prepare income statements for your business that details the company's total annual profit.
The business brokers from Selby Associates of New Jersey would be happy to answer any question you have about business advisory services or corporate exit planning.
When a buyer is searching the market for a business investment, they look at the past few years of a company's performance. Your business's past profitability is an example of how well your business has fared in recent years. A buyer wants to see profitability that has grown each year, or at least remained the same. If your profitability started out high and then started falling, it would signal that something is wrong with your product or service. Profits that have stayed the same aren't as impressive as growing profits, but show that the business has consistent performance. The higher your profits, the more your business worth increases.
All businesses should have a good, responsive accountant. If you don't have accurate financial records and historical data regarding inventory and payroll, then you can't create new business goals that will help you improve your profit margin. A potential buyer can look at your income and expenses and try to determine how small changes they make after buying the business can help increase profits. Your records also help buyers, who will be working with attorneys or business advisers to help negotiate a deal, pinpoint any potential profit problems or drains on the company that will impact future profits.
Accurate income and profit reports show a potential buyer your business's ability to perform. If your current profitability is low, work hard to increase profits so that your business is more marketable when you put it up for sale.
Another factor to consider regarding you business value is customer diversification. You may have a steady stream of customers who keep the profit margins steady, the diversification of customers is very important. You cannot have a large percentage of your sales with one or a few customers. Prospective buyers will look at your customer base and their sales history to determine if sales are spread out among enough customers and your business shows growth (new customers annually).