1. HOW TO PREPARE YOUR BUSINESS FOR SALE

2. Prepare the documents:
Balance Sheet
Short term assets: (twelve months to sale or consumption)
Collect or sell (factoring) the accounts receivable.
Sell marketable product.
Fuel in storage.
Inventoried supplies.
Long term assets: (>twelve months to sale or consumption)
Small tools and equipment. (Hand tools)
Rolling stock.
Vehicles and trailers.
Equipment and machinery.
Real estate. (Land and structures)
Tax Returns. (three years)

3. Preparing the Documents Continued:
Consider hiring an appraiser to help determine the value of land and structures.
Utilize industry professionals to help determine the value of rolling stock and inventoried supplies.
Utilize your tax professional to provide any addendums or interpretations of tax records.

4. Methods of Business Valuation:
Only 30% of businesses sell as constituted.
Comparables.
Asset Valuation Method.
Income Capitalization Method.
Discounted Cash Flow Method.
Sometimes called the Net Present Value Method.

5. Comparables Method:
Seek like kind sales information from industry participants.
Seek like kind sales information from trade associations.
Normally use five to six geographic comparables.
Select the median value. If not select the average value.
Point out circumstances which might reflect that your business holds a greater value than the comparables.

6. Asset Valuation Method:
Sometimes called the Asset Liquidation Method.
Place a value on short term assets.
Place a value on long term assets.
This method is best used if your business is not profitable or marginally profitable.

7. When Preparing Real Estate for Sale:
Invite an industrial site examiner to review and analyze your real and tangible properties.
Make sure real and tangible properties are functional and safe.
Remember clean, white, and bright.
Uncluttered.

8. Capitalization of Earnings Method: wikihow
Capitalization of Earnings Method: wikihow.com/value a business for sale
This method is good for valuing businesses with strong intangible earnings and are considered a going concern.
This method is commonly used for owner/operator businesses or a business with an absentee landlord.
Determine Seller’s Discretionary Cash Flow
Calculate your yearly net earnings before taxes.
Add to this value depreciation expense.
Add to this value interest expense.
Add to this value owner compensation or in the case of an absentee landlord, compensation paid to a manager.
Add to the value any owner personal expenses paid by the business.
Add unusual one-time operating expenses.

9. Capitalization of Earnings Method Continued:
Subtract non business generated income.
Subtract any interest income.
Arrive at a total figure.
Multiply that value by three.

10. Discounted Cash Flow Method:
Sometimes called the Net Present Value Method:
It might be helpful to have an accountant or finance specialist assist with this calculation.
Project and determine your net cash earnings from your business for the next four years.
Determine your average net return on income R.O.I. for the last four years.
Most small business want an R.O.I. of 20% or greater.

11. Discounted Cash Flow Method:
Year
Amount
Factor
Value
2017
280,000
.8333
233,324
2018
285,600
.6944
198,321
2019
291,312
.5787
168,823
2020
297,138
.4823
143,310
Total
743,778

12. Summary: Short Term Assets: Inventoried Supplies $40,000
Long Term Assets:
Machinery & Equipment
$350,000
Vehicles
$150,000
Rolling Stock
$20,000
Small Tools & Equipment
$25,000
Real Estate
$1,800,000
Intangibles:
Discounted Cash Flow Value
$743,778
Total
$3,128,778

13. In Conclusion:
Go through this business valuation process on a yearly basis.
Have the accumulated records available for:
Potential buyers.
Estate liquidators.