Using a Business Broker in Odessa to Sell Your Company

In this article, we will provide an overview of business value, how a business broker may help you, and provide an understanding of basic valuation topics and concepts that are critical for Odessa business owners. You may be asking yourself, “why do I need business appraisal knowledge if I’m using a broker?” The answer is simple (at least from my viewpoint). Businesses changes hands frequently for a variety of purposes. In many instances business owners in Odessa rely on previous business appraisals to determine business value. And to answer the question, business values change depending on the purpose of the appraisal. A local business broker in Odessa can help you sort through the good, bad, and the ugly.

According to data published by the U.S. Census Bureau, there are about six million businesses that employ people in the United States. A little more than 3.5 million (58%) U.S. businesses have sales of less than $500 thousand. The industry term for these smaller companies are “mom and pop shops.” Business brokers in Odessa often use this terminology because the business owners primary function is to provide a job and income for the owners.

Approximately two million (33%) businesses have annual sales between $500 thousand and $10 million. This segment of the business community is generally given credit for the majority of job growth. Only about 200 thousand businesses have annual sales exceeding $10 million. Most business brokers in Odessa are used by business owners for companies that have less than $10 million in annual sales. 

At the top of the business pyramid are public companies. Of these, as of 2012, only about four thousand have active public markets for their shares with regular stock pricing and volume information available. Because of their size and visibility, this relatively small group of public companies gets the lion’s share of coverage in the business press. As a result, most of the popular business press coverage of valuation issues relates to public companies. Information about public companies is generally easy to find because the information is publicly available. 

Most Odessa Companies are Privately Owned

Most of the businesses in Odessa, Texas are closely held, or private corporations. This means that most of the business owners in Odessa are not in public companies, but in generally smaller entities owned by a single, or a small number of shareholders. Therefore, it’s important for these business owners and their advisors to have an understanding of the nature of value in these businesses. This is where an Odessa business broker comes in.

Odessa Businesses Change Hands Frequently

Most Odessa business owners, and, quite often, their advisors, have inaccurate conceptions of the value of their businesses. This is not surprising, because there is no such thing as “the value” of any business. Value changes, often rapidly, over time. Yet it is important for Odessa business owners to have current and reasonable estimates of the values of their businesses for numerous reasons, including ownership transfer.

There are many reasons for ownership transfer of Odessa based businesses, including:

• A death of the primary owner
• Key employees leaving the company
• Owner decides to sell
• Marital divorce
• Gift and estate tax planning
• General lifetime planning

The Common Thread Behind Most Business Transfers

Unfortunately, most Odessa business owners don’t plan for the eventual transfer of their business. To make matters worse, many business owners are not aware that there are business brokers in Odessa that they can use to assist them. In our experience, most business sale or transfer decisions are made quickly. In many cases, business owners never seriously contemplate the sale of their Odessa businesses until the occurrence of some precipitating event, and shortly thereafter, a transfer takes place. The logical inference is that many, if not most, business sales occur under less than optimal circumstances. A business broker in Odessa’s primary responsibilities can be summed up in two phrases; (1) get the best price possible; and (2) ensure the transaction goes smoothly.

The only way business owners can benefit is to constantly do the right things to build and preserve value in their businesses, whether or not they have ever entertained a single thought about eventual sale. In other words, owners should operate their businesses under the presumption that it may someday (maybe tomorrow) be necessary or appropriate to sell. When the day comes, business owners will be ready – not starting to get ready and already behind the eight ball. One of the best ways to get the ball rolling is to hire a business broker in Odessa to go through the planning phases.

What a Business Owner Thinks About the Value of Their Business Ultimately Doesn’t Matter

It is a hard truth for many Odessa business owners to learn that what they think regarding the value of their business doesn’t matter. The value of any business is ultimately a function of what someone else with capacity (i.e., the ability to buy) thinks of its future earning power or cash generation ability.

For other transactions with gift or estate tax implications or with legal implications for minority shareholders, what a business owner thinks still doesn’t matter. What then becomes important is the value a qualified, independent business appraiser or the court concludes it is worth. In so doing, the appraiser or the court will simulate the arms’ length negotiation process of hypothetical willing buyers and sellers through the application of selected valuation methodologies.

Theoretically, the value of an Odessa business today is the present value of all its future earnings or cash flows discounted to the present at an appropriate discount rate. To determine a business’s worth, determine two things: 1) What someone else (with capacity) thinks the company’s earnings really are; and 2) what multiple they will pay. Simplistically, we are saying:

Value = Current Earning Power (E) x Multiple (P/E)

Real buyers of capacity will make reasonably appropriate adjustments to the company’s earnings stream in their earning power assessments. In addition, they will incorporate their expectations of future growth in earning power into their selected multiples (price/earnings ratios). Or they will make a specific forecast of earnings into the future and discount the future cash flows to the present. This is something that business owners almost never do; however, it is all business brokers in Odessa do. 

Caprock Business Consulting is a business broker in Odessa. We have provided over 1,000 valuation opinions for companies throughout the nation. Many of our Odessa clients are enormously successful enterprises.

Our successful client companies have one thing in common – they achieved their success by conscientiously working to build value over time. Success rarely comes instantly. For most companies, it comes slowly, and then only in spurts.

Successful companies manage to grow through their spurts, and then to hang on until internal and external circumstances are ripe for another spurt. In this pattern, they slowly build enterprises of substantial value.