W5 A3_Final Project
Selling the Business
There are instances when, due to various reasons, such as bad health, you need to sell your business. Although there are several methods that can be used to value your business, you need to determine which method would earn the greatest profit.
The first question you need to consider is, “How quickly would you like to complete the sale?” because each method is totally dependent on your need based on time. Some methods may require a year or more, assuming you have a buyer, and other methods may be accomplished quickly.
This week, you will review the following valuation methods and determine which method you would prefer, depending on the nature of your preferred business selected in Week 1, when deciding to “cash out” your business:
- Market valuation method:
- Valuation is determined by comparing the values of similar businesses in the same area.
- Valuation of tangible assets may differ from similar businesses.
- Valuation of intangible assets may differ from similar businesses.
- Valuation is determined by considering the economic conditions at the time.
- Financial valuation method:
- Valuation is determined based on the duration of business.
- Valuation is determined by considering competition with similar businesses in your area, including their:
- Financial history
- Accounts payable (liabilities)
- Accounts receivable (assets, what people owe you)
- Cash on hand
- Net profit or loss
- Tax returns
- Income valuation method:
- Valuation is determined by considering the future income based on past performances.
- Valuation is determined by considering the changes in the economy due to the following:
- Developments in the neighboring areas
- Changes in the nature of neighboring industries and people’s habits
- Consistency in customer base
- Blue sky phenomenon
- Replacement valuation method:
- Valuation is determined based on what it would take to begin the business from start.
- Valuation of assets is determined based on their condition (new, used, old, or worn-out).
- Valuation includes the replacement cost of assets.
- Tangible valuation method:
- Valuation identifies tangible items that you can hold, as opposed to contracts.
- Valuation determines cost of tangible assets, including property, equipment, supplies, and inventories (based on receipts).
- Valuation determines a manufacturer’s charge for a like replacement.
- Intangible valuation method:
- Valuation determines cost of intangible assets, including customer lists, contracts, accounts receivable, cash, intellectual property, and reputation.
- Valuation possibly negotiates harder for seller to obtain the right price.
- Valuation considers the blue sky phenomenon.
- Liquidation method:
- Valuation determines the cost of a business on sale for a long period of time (six to twelve months).
- Valuation reduces assets to value; pricing becomes moot.
- Valuation settles for less when it is necessary to sell.
When determining the best method to sell out your business, address each component of that method and provide a rationale to support your answer. In addition, determine the process you would use to value your assets, keeping in mind your business may have tangible, intangible, or both types of assets. Remember, in case you have none of these assets, it would mean you are selling the blue sky. Therefore, no buyers would want to buy your business; instead, they would prefer starting one of their own.
Also, make sure to include information on the following points:
- Any professionals you would involve in the sales process.
- The functions or responsibilities of professionals, if any, in the sales process.
- If the business does not sell, what do you do? Why?
Submit your document in a 2- to 3-page Microsoft Word document.
Key Areas of Concern
– All of this must be original work.
– Suspense must be met
– No plagiarism
– Pay close attention to the instructions above and do not compensate subject matter with a bunch of spacing please.
