A Quick Business Appraisal Doesn’t Mean a Quick Sale

by MMJ Business Sales & Acquisitions 4th of October, 2021
A Quick Business Appraisal Doesn’t Mean a Quick Sale
Quick appraisal doesnt mean quick sale

The journey for a business seller can be long and often traverses unfamiliar territory. One of the most common reasons that the selling process can stretch out is if the initial asking price is above a fair market price. Alternatively, an asking price that fails to capture all the positive aspects of a business may result in a quick sale, but at a price well below the best possible price.

A key factor in establishing an asking price for a business is the appraisal provided by a business broker. A business owner looking online for initial assistance in selling their business will be bombarded by online ads offering online calculators and automated tools to “Find Out How Much Your Business is Worth”.

A business agent who relies on such a non-customised approach massively increases the risk of providing inaccurate pricing advice to a business owner.

Every Business Is Unique

Conversely, a business sales agent that takes the time to properly understand the unique features is more likely to provide pricing advice that will accurately reflect the unique characteristics of the business and the market it is operating in.

An experienced and professional broker will want to undertake a customised Business Appraisal and shed some light on what the market is willing to pay for your business. Such a Business Appraisal process:

  • is designed to help you set a realistic asking price
  • takes into account 2 or 3 appraisal methods
  • reviews recent marketing and sales of similar businesses
  • considers what the bank may provide a buyer in finance

A thorough Business Appraisal will take into account the following key elements:

  • Business Systems (training & manuals, management and trained staff)
  • Risk (reliability of information presented for due diligence)
  • Assets (plant & equipment, Intellectual Property)

There are many methods to appraise a business, but they can be distilled down to four fundamental methods as used:

  1. Future Maintainable Earnings
  2. Asset Based
  3. Market Based
  4. Industry Ratios

Your asking price should also be reviewed and adjusted depending on the market response and in line with your timeframe for selling.

Current Market Conditions Impact

When an industry experiences unusual influences, either positive or negative, then this needs to be considered in any business appraisal model.

The widespread but non-uniform impacts of COVID-19 and the subsequent government assistance packages will not be considered in any automated business appraisal model. Consider for example the impact of the Jobkeeper assistance package provided by the Australian Federal Government from 30th March 2020 to 28th of April 2021. During these 12 months the requirements and amounts paid were altered on numerous occasions.

As a result of this intervention the Profit & Loss Reports for both Financial Year 2020 and Financial Year 2021 were heavily impacted. Additionally, businesses responded differently to the Jobkeeper stimulus. Some businesses closed completely for periods during the shutdown, some pivoted the business model temporarily eg. restaurants became bottle shops or bakeries. Others with a large casual workforce component actually increased wage payments to staff, even when revenue was lower than normal.

A business broker that examines these two financial years as part of an appraisal needs to fully understand

  1. how COVID-19 impacted the business – both impact on revenue and supply constraints
  2. what government assistance the business received
  3. how the government assistance changed the business operations
  4. how the business recovered during Financial Year 2021

In order to do this the broker should be conducting an in depth one on one interview with the owners and examining monthly profit and loss reports from the period. This doesn’t happen with automated/online business appraisals.


Business Appraisal Process

The Business Appraisal Process

The business appraisal process followed by MMJ Business Sales and Acquisitions usually involves two physical visits to the business to interview and present to the owners. In addition, our analysis of the financial information can include a meeting with the business owner’s accountant. We conduct in-depth research of:

  • revenue to understand the stability of earnings and  
  • expenses to determine the true benefits being enjoyed by a proprietor
  • cashflow to show how a new owner could service finance repayments
  • assets to determine if the depreciated value is an accurate representation of replacement value
  • impact of abnormal events e.g. the South Coast of NSW experienced disruptive bushfires and floods in 2020 which impacted revenue
  • the operational systems and current employees
  • the industry the business operates in to understand risk and opportunities for growth

An additional benefit of a thorough, customised appraisal is that it may identify simple ways for your business to make improvements that could positively impact the sale price. Last year MMJ helped a South Coast manufacturing business to analyse cyclical Work-In-Progress movements. This enabled a timely sales campaign with a sale price designed to attract the right buyer candidate whilst still ensuring the business seller received a very healthy net return.

Providing meaningful analysis of your business is clearly a critical component of providing an accurate appraisal. To provide this it is important that a business broker has a comprehensive understanding of how business works. Such an understanding is best developed through the business ownership experience. The MMJ Business Sales Team of Martin Lo Surdo, Justin Bunt and Cassie Saville have started, owned and successfully sold their own businesses in industries including tourism, hospitality, automotive, retail and professional services and bring this extensive knowledge and empathy into every business appraisal they conduct.

If you are a business owner planning a journey towards a successful sale, we encourage you to embrace a thorough, customised business appraisal as one of your first steps. The benefits in terms of achieving the best possible sale price and a smooth sales process far outweigh any initial time saving that an automated appraisal offers.

Contact MMJ Business Sales & Acquisitions today to see if your business is suitable for a complimentary, customised business appraisal.

Tags: selling appraisal

About the author

MMJ Business Sales & Acquisitions

Business Broker

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