Business valuation and maximizing value

  • by Krystena Petrakas 

Interview with...

Pino L. Bacinello, president and founder, Sunbelt Business Brokers Pacific Inc & Pacific Mergers and Acquisitions Inc
Topics covered:
Preparing to sell, maximising business value, valuing a business
CV:
Owned several businesses; director of International Business Brokers Association (IBBA), co-host of Entrepreneurial Insights internet radio show on VoiceAmerica; served on boards of not-for-profit organizations; on board of Winston College and Small Business BC where he teaches on business sales; certified IBBA instructor
Expertise:
Divestitures, acquisitions, mergers and succession in range of sectors
Location:
Vancouver
 
Small-business for sale

Pino L. Bacinello explains the complex process of valuing a business


BusinessesForSale: How far in advance should a seller start preparing their business for sale? Does this vary according to the sector?

PB: Yes it does vary not only according to sector, but due to the business complexity as well. However, I believe a seller should prepare way in advance – the more time the better.

BFS: Can a broker represent the buyer and seller?

PB: It depends on the laws of the province and state, but across Canada the answer is yes.

BFS: In what ways can you maximise the value of your small business for sale before you sell it?

PB: By maximizing all value drivers of the company, to ensure the business is at peak value and in a state of what I call ‘change readiness’.

Business valuation is very much a complex, subjective art and one should be very knowledgeable of the subject

One has to also be able to transfer the commercial goodwill and personal goodwill to maximise the value at the time of sale. It’s important to remember that the more important the owner is in the business, the less value the business carries.

BFS: Can you give me a brief explanation of how you go about valuing a business for sale?

PB: We determine who the likely purchaser will be, gather and normalise the data, weight the relevance.

Then we use three approaches and 12 methodologies. We weight them for relevance and use 69 value drivers to come out with a value that is extremely accurate and reflective of the market. We have developed our own valuation software to do this.

BFS: How can a business be drastically overvalued or undervalued by a broker?

PB: By having inaccurate information or being overaggressive and unrealistic with projections. I had a realtor once tell me, when asked how he valued the business: “That is what the owner needs to retire.” This is clearly not the right way to value a business.

Business valuation is very much a complex, subjective art and one should be very knowledgeable of the subject. Often, using the numbers only, as in the case of accountants and CBVs, can over- or under-value a business.

BFS: What is the most difficult aspect of valuing a business and why?

PB: Being objective and not being afraid to challenge the information provided. Another difficult aspect is giving up the notion that the result may not meet the owner’s expectation. This is a must, however.