This is one of the most important and difficult questions for any business owner to answer.  The value of a business is based on its future cash flow, which usually can be predicted from historical results of sales and profitability.  Buyers don’t care how much you spent yesterday, they care how much they can make tomorrow.  Ultimately your business is worth what someone will willingly pay.  A common mistake owners make is that they believe their business is worth what they have invested in it, that is rarely true.

If you are a franchisee, you are part of a system and usually are not so unique to lack comparable statistics. Talk to your franchisor to see if they have historical data on what other units have sold for.  You also can see if other units in your system are listed for sale and what their asking price is relative to their revenue and profitability.  Read more »

Unless you already have a buyer, such as a fellow franchisee, a key manager, or a family member, then you should use a business broker.  And even if you have a buyer, it may be helpful to still hire a business broker to expand the universe of those interested in your business and to confirm that you are getting a fair deal.  The law of supply and demand applies to businesses as well.  If you have more buyers (higher demand) you should be able to command a higher asking price.  Brokers have specialized knowledge and experience  dealing with multiple transactions a year, where you may only sell a business once in your life or only a handful of times.

In addition, don’t underestimate the value that a broker provides by acting as a third party intermediary. They will screen unqualified buyers and help the serious buyers understand your business better.  Read more »

What are the factors to consider when choosing the proper legal entity for a new business? This article discusses the most popular types of entities for start-up businesses.

The choice of an entity is often the first important legal decision that an entrepreneur must make.  In the last few years the choices have become greater.  An individual business owner can have a sole proprietorship, corporation (C or S) or limited liability company.  An organization with several owners can be formed as a general partnership, corporation, or Limited Liability Company (“LLC”) (note limited partnerships and Limited Liability Partnerships will not be discussed in this article).  On what basis does a firm make this important decision?  Certain key factors help to form a guide in answering this question. Read more »