Davidson Ashe Inc

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Price is the primary issue for most sellers and a key issue for many buyers as well, although there may be other issues for a buyer of similar import. The buyer and seller are acting under different levels of compulsion, with a different bias and with conflicting interests. The Selling Price is certainly the issue most fraught with potential for disagreement between the two. Full fair market value is the price a reasonable seller will want for the company, and full fair market value is the price a reasonable buyer will be prepared to pay. But what is full fair market value? Our definition is the amount at which a business will change hands The problem is, regardless who develops the fair market valuation, any valuation is, at best, a reasoned opinion based on a combination of tangible and intangible factors. The more tangible of those factors are related to what the company has earned and retained from years past. The less tangible are those related to what the company will yet earn in years to come. What the Company has earned and retained from past years is represented in its balance sheet. What the Company will be earning in years to come will be based on a number of factors far less exact than the balance sheet. No one knows the future, so any projection of future earnings is an estimate for which there is no rule of thumb, and no exact science. Yet, if full market value is the goal, future-earning projections must be factored into the price. While not an exact science, there are quantifiable components to measure and consider. Generally accepted methods can be used to calculate sustainable earnings, and to justify goodwill value. The Selling Price: Any full market price valuation must factor the balance sheet value, along with a reasoned and justifiable calculation of sustainable earnings, (EBITDA – earnings before interest, taxes, depreciation, amortization), cash flows, tax consequences and the recent and current trends of the company. Discretionary and non-discretionary spending must be also factored, and any estimation of sustainable earnings should also consider the type and "appeal" of the business; barriers to entry; potential for new management to bring improvements; potential and probability for expansion and growth; market and industry economies and trends, and more. Payment terms versus no payment terms will also be an important price-determining factor. Again, since price is obviously of major importance to both parties, consideration should be given to each factor influential to the value. It is important to ensure that the asking price be full market value. Equally important, is that the price is not unreasonably more than full market value. Asking too much will simply discredit the seller and the business to many of the best buyers, immediately, often without appeal. Asking too little will ensure too little. Somewhere between is a realistic, full and fair market price. Whatever is considered, calculated and valued, at the end of the day the price must seem reasonable and be acceptable to both the seller and the buyer, or there won’t be a sale. The seller should strive to achieve that consensus without exposing the business to a parade of would-be buyers. Ideally, in preserving confidentiality to the greatest extent possible, the seller will want to offer the business at the right price, to the right buyer and to no others. This is generally not practical, or possible, but limiting exposure must be the goal. Achieving that goal requires material preparation and solid price justification. As a broker, pricing is the first step in our selling process. Re-pricing is the final step. The fact is; the full market value of a profitable business will generally be greater on the last day of the selling process than is had been on the first. If full market value is to be achieved, final sale price must be based on last day valuation. It will, therefore, be important to incorporate an adjustment formula that would allow the sale price to be increased on that last day, before the sale closes, without alienating the buyer and killing the deal. Again, this too is achievable with thorough preparation and solid justification of the process. To the achievement of these ends, we have found it almost imperative in our representation of a Company’s owner/seller, to begin with the broker and seller on the same page with respect to the selling price. We are attentive to that objective in advance of entering into any representation agreement. Agreement, from the outset, with respect to the selling price and other issues, provides the seller with a realistic expectation. It also provides the broker with a justified and defendable price and process, and critical means by which to pre-qualify and select suitable buyers. Pre-qualification of some, and disqualification of others, eliminates the parade of buyers and thus minimizes the disclosure of identity and other confidential information. It also serves to minimize demands on the seller’s time and enables the owner-operator to maintain full and essential focus on the day-to-day business operations throughout the process. next chapter... Seller Representation ALL COMMUNICATIONS WITH DAVIDSONASHE WILL BE HELD IN THE STRICTEST OF CONFIDENCE IMPORTANT: In the interest of preserving confidentiality, should you contact us and should your method of contact be email, we will assume your email address is private to yourself and that we are free to communicate with you at that address. Be sure to tell us if that is not the case.

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