Preparing your business for sale: Cash flow projections for business valuations
Preparing your business for sale involves much more than sprucing up its curb appeal and the cleanliness of the office or plant. While these factors are important in creating a positive first impression, there is a substantial amount of planning that should take place well in advance of exposing the business for sale. In addition to Normalizing Financial Statements, the preparation of cash flow projections can help increase the price realized for your business.
Position Your Business as an Investment in Future Performance
Potential buyers will want to know that your business represents a secure investment. A well-reasoned and realistic business plan incorporating a projection of future profit for the next one to three years can grant assurance to potential buyers, resulting in a significant increase in the value of a company.
Such projections are also an excellent vehicle to paint a picture of the future plan for the business, specifically identifying growth opportunities and untapped expansion potential.
Business Valuations and Cash Flow Projections for a Stronger Negotiating Position
The preparation of projections may allow you to demand better terms, as it may convince buyers of the growth potential of the business. A properly prepared business plan and projection may also enhance the buyer’s ability to secure financing for the purchase.
The projections are developed using a “bottom-up” approach. This means that the projection is built upon underlying assumptions, such as number of units that can be sold each month, selling price per unit, actual and potential customers, market penetration, stable buying trends, and so forth.
Stay tuned for future blog posts on additional strategies to help you increase the value of your business, or contact us today for a free consultation.