When selling a business in Oregon and elsewhere, there are three steps to take in getting the business ready to sell. The first step in such a business law transaction is to get an appraisal. The appraiser uses recognized valuation methods to put a sale value on the business. This includes the elusive but important value of the good will of the business.
The seller should take care to see to it that a properly credentialed and certified appraiser is used. It is best to interview and interact with several appraisers prior to selecting one. Once selected, the appraiser will determine a fair market value, which is then used as an asking price. The second thing that must be done is that the seller must make financial disclosures regarding certain aspects of the business.
The owner needs to create a set of financial books for the buyer to review to get a correct sense of the financial health of the business. The disclosures will explain how the owner get paid, whether by salary, draw or compensation by payment of a salary. The buyer must always sign a nondisclosure agreement for the purpose of protecting any information during the transaction. The third thing to do is to prepare an EBITDA statement (earnings before interest, interest, taxes, depreciation and amortization).
This is a recognized business law transactional standard in Oregon and elsewhere that gets more accurately to the true earnings of the company. This is a calculation that tells the buyer much more accurately the amount of sustainable cash of the business. It cuts out various expenses that will likely not be incurred when a buyer takes over the operation. Thus, the process of fine-tuning the business financials adds to the attractiveness of the entity offered for sale. After the owner engages in the foregoing processes, the business will be readier for sale with the strengths of the foregoing procedures having been taken.
Source: entrepreneur.com, “3 Steps You Need to Take to Sell Your Business“, Mark J. Kohler, Dec. 13, 2017