In order to get the best value for your technology business, it is extremely important to set a realistic asking price. There are a number of key factors that play a pivotal role in correctly pricing a business. Most sellers don’t pay close attention to correct pricing due to which their business-for-sale either takes too long to sell or it ever sells.
In many cases, sellers don’t consider total price – like will the available cash flow of their business-for-sale be able to pay the debt of a business loan, will the pricing structure be attractive to lenders, what is the cash vs. note price, and how all these key factors affect the final price. Let’s have a quick look at some of these factors.
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One of the most important things that you need to be careful about is to keep the sale of your technology business completely confidential. This is because if the word about your company’s sale is out early, it will affect many things that are directly or indirectly associated with your company.
In fact, this news can drive the profitability of your business down and freak out your current employees. So, when is the right time and what is the best way to tell your employees that you are selling your technology company? Bear in mind that every business-for-sale has special circumstances, but in majority of cases, it is best to wait until the sale deal is near closing.
You have to make all purchase contingencies have been satisfied, all money is in escrow, financing in its proper place, and your landlord has accepted the new acquirer and they have signed on the lease agreement. If you are wondering why you should wait till the sale is near closing, stop wondering, and read on to find out the reasons why you should wait.
Have you considered using the fundamentals of economics? These fundamentals are time tested in the business marketplace and every seller should use these fundamentals to price their technology business. Consider your business is money making machine and it has only one purpose – to make money.
The more money you are able to make from it, the more your technology business is worth. So, it is very simple to determine the actual worth of your technology company. If it’s profitable to you, you can sell it for a high price.
Adjusted Net Income
When pricing your technology company for sale, the first set of information that you will need is called adjusted net income. You can take images, edit the photos and upload them on some website so that you can get some idea. This is basically the total amount of cash that is produced by your company (your money making machine). Adjusted net income is a figure that includes different numbers, such as the profits, your salary as owner, and other cash-related benefits that are enjoyed by the principals of small businesses.
Those cash-related benefits could include use of company car, life and car insurance premiums, and personal expenditures etc, along with accounting entries that can put money into the owner’s pocket so that it never appears on the profit and loss statement.
Keep into mind that adjusted net income is the first piece of information that the potential buyer would want to see when investigating your technology company. So, it is important to keep this document ready for buyer’s inspection.
As a seller, you should be well-prepared to demonstrate a history of consistent profits, and have proper documentation to back up that earnings history. This is a surefire way to sell your technology company on asking price that you want.
Multiplier is a figure that is computed to calculate a rough value of your technology. Multiplier and cash flow determine actual value of any business. Multiple should reflect behaviour in the market. If it doesn’t reflect the market behaviour, buyer will raise question on its validity. In order to calculate multiplier for your technology company, you should determine what price people are paying to buy technology businesses in your specific location.
In short, it is advised to use these key factors in order to correctly price your technology business for sale.
How to Tell Your Employees about Sale?
After being sure the sale deal is solid and near to closing, you can now tell your employees about what is going to happen. The best way to tell your employees is to call an employee meeting and have the new owner present.
Prior to the meeting you should inform the new owner on how you want to conduct the meeting and what things you want him or her to say to your employees. New owner should tell your employees that he or she will not make any big changes in your technology business after acquisition.