Many buyers view a publicly held company as being an open book with at least a modest level of transparency, whereas privately held companies reveal much less about their inner workings – financial and otherwise. Of course, this means that buyers of privately held companies are left with no choice but to dig through whatever information is available in an effort to determine if a valuation or price reflects reality.
Comparing Publicly and Privately Held Companies
Determining the price on a privately held company is typically more time-consuming since privately held companies usually don’t have to deal with audited financial statements. But why do most privately held companies typically forgo the process? Audited financial statements are expensive, and it is this expense that often prevents companies from going public. A publicly held company is expected to reveal significantly more information, including often sensitive financial information.
What Sellers Can Do
If you’re a seller, you can take steps to make the process a bit easier for buyers. One step is to work closely with your accountant in an effort to ensure that the numbers are not just accurate but are also presented in a concise and easy to understand fashion. This move serves to boost trust between buyers and sellers and, in turn, can increase the chances of selling your business.
Determining value is another area where sellers of privately held companies can take steps to assist buyers. Sellers should consider opting for an outside appraiser or expert when it comes to determining the value of their business. The opinion of an outside expert clearly carries more weight, and using an outside expert is yet another step that sellers can take to boost overall trust with buyers.
Is your business exit ready?
If you’re planning to exit your company in the near future, you may find EastWind’s Exit Strategy Playbook helpful in developing your own exit strategy, making your company more sellable.
Establish Your Bottom Line
Another key step is for sellers to establish their wish price. The wish price can be thought of as what price the seller would ultimately like to receive. It is also helpful for sellers to know well in advance what the lowest possible price for their business would be.
When establishing a price, there are several areas of the business where sellers can expect buyers to pay special attention. Here are a few areas that buyers are likely to explore:
Size and scope of customer base
Needs for capital expenditures
Overall stability of the market
Stability of earnings
The general landscape of competitors
Businesses relationships with suppliers
As with all transactions, the marketplace will have the final word regarding the sale of any business. Sellers should expect to receive a price somewhere between their asking price and their lowest price. But taking the right steps throughout the process can definitely make the process smoother and boost the chances of success.