FAQs for Sellers
How much is my business worth?
Your business value depends on several key factors, including historical and projected EBITDA, revenue growth trends, profit margins and consistency, customer concentration and retention, competitive positioning, and market conditions. Evolution Advisors provides guidance during the valuation process while a third party conducts the comprehensive valuation analysis.
What is EBITDA and why do buyers focus on it?
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) represents the cash-generating capability of business operations before financing decisions and non-cash charges. As a buyer, EBITDA is critical because it shows you the earning power you’re acquiring and forms the basis for most purchase price calculations. Understanding EBITDA helps you compare opportunities across different businesses and industries.
How do I prove my adjusted EBITDA to buyers?
Should I focus on net income or EBITDA when preparing to sell?
Why do buyers care so much about cash flow?
What if my business is profitable but cash flow is tight?
How can I improve cash flow before selling?
Accelerate collections and tighten payment terms, reduce excess inventory and improve turns, negotiate better payment terms with suppliers, eliminate discretionary spending that doesn’t contribute to EBITDA, and clean up aged receivables. Better cash flow makes your business more attractive and can increase the pool of qualified buyers.
Should I structure the sale as an asset sale or stock sale?
In an asset sale, the buyer purchases specific assets and liabilities of your business rather than the company’s ownership interests. You retain ownership of the legal entity while transferring individual assets such as equipment, inventory, contracts, intellectual property, and goodwill. Liabilities transfer only if explicitly assumed by the buyer.
In a stock sale, the buyer purchases the ownership interests (shares or membership units) of the company itself. The buyer acquires the entire legal entity along with all its assets, liabilities, contracts, and obligations, both known and unknown. The legal entity continues to exist under new ownership.
Talk to your tax professional for a more in-depth look at these two options.
Should I offer seller financing?
Seller financing – providing a loan to the buyer for part of the purchase price – can make your business more marketable, potentially increase the sale price, provide tax deferral benefits, and earn interest income. However, you’re taking on the risk that the buyer will repay you.
If offering seller financing, consider factors such as what percentage of the purchase price to finance, the appropriate term length, suitable interest rates, your position relative to other debt holders, and the buyer’s financial capability and track record. The structure of seller financing varies significantly based on deal size, buyer circumstances, and market conditions. Seller financing is often a valuable tool for facilitating transactions, particularly when buyers have limited access to traditional financing.
What should I expect during the due diligence process?
How can I prepare for due diligence?
Due diligence preparation should begin months before going to market. Key steps include organizing 3-5 years of financial statements and tax returns, compiling all material contracts with customers, vendors, and employees, documenting operational processes and systems, resolving outstanding legal or compliance issues, cataloging assets and intellectual property, and cleaning up corporate records. Well-organized due diligence materials build buyer confidence, minimize delays, and can strengthen your negotiating position.
Working with your M&A advisor, we provide comprehensive due diligence preparation services to ensure you’re positioned for a smooth and successful transaction process.
Is my business worth at least the value of my assets?
For most operating businesses, value is based on earnings (EBITDA), not assets. Your business could be worth less than your assets if it’s unprofitable or marginally profitable, or worth far more than your assets if it generates strong cash flow and has intangible value like customer relationships, brand, and market position.
I own the real estate my business operates from - how does that affect the sale?
You can either include the real estate in the sale or retain it and lease to the buyer. Including real estate typically attracts more buyers and simplifies financing. Retaining real estate allows you to diversify proceeds, maintain an income stream through rent, and potentially achieve higher total value by selling property later. Consider tax implications, buyer preferences in your market, whether the location is critical to the business, and your personal investment objectives. Evolution Advisors helps sellers evaluate both options.
What is a CIM and do I need one?
A Confidential Information Memorandum (CIM) is a professional marketing document that presents your business to qualified buyers. The CIM tells your company’s story, highlights strengths and opportunities, presents financial performance, and provides enough detail for buyers to make initial valuations. A well-prepared CIM is essential for professional sales processes – it positions your business effectively, saves you time by answering common questions, attracts serious buyers, and helps maximize value.
Evolution Advisors creates comprehensive CIMs that showcase your business story.
Why should I hire an M&A advisor to sell my business?
Professional advisors manage a confidential, competitive process that maximizes value, prepare professional marketing materials and financial presentations, identify and qualify serious buyers, negotiate deal terms and protect your interests, coordinate due diligence and manage advisors, and guide you through complex legal and tax decisions. Selling a business is probably the largest financial transaction of your life – experienced representation pays for itself many times over.