Things Your Broker Will Do to Help You

1. Financial Preparation

Assessing and Analyzing Your Financials: The first step your broker will take is to thoroughly review your financial statements. This isn’t just about ensuring accuracy; it’s about positioning your business in the best light possible. One critical element they focus on is SDE (Seller’s Discretionary Earnings).

SDE Calculation: SDE represents the total financial benefit that a single owner-operator would derive from your business. It includes your business’s earnings before interest, taxes, depreciation, and amortization (EBITDA), plus the owner’s salary, benefits, and other discretionary expenses. These discretionary expenses, often referred to as add-backs, play a crucial role in enhancing the perceived value of your business.

The Role of Add-Backs: Add-backs are adjustments made to your financials to reflect the true profitability of your business. Common add-backs include non-essential expenses, one-time costs, and personal expenses that wouldn’t apply to a new owner. By identifying these add-backs, your broker can increase your SDE, making your business appear more profitable and, therefore, more valuable to potential buyers.

Understanding EBITDA: While SDE is particularly relevant for small business sales, EBITDA is another critical metric your broker will consider. EBITDA focuses on your business’s operating performance by removing the impact of capital structure, tax rates, and non-cash accounting items. This makes it a widely used metric in larger or more complex transactions.

SDE vs. EBITDA: Your broker will compare SDE and EBITDA to determine which metric best showcases your business’s value. While EBITDA is often used in broader market comparisons, SDE provides a more detailed look at the earnings potential for small businesses. Understanding the difference allows your broker to present your business in the best possible light, depending on the target buyer.

2. Business Valuation

How Your Broker Values Your Business: After organizing your financials, your broker will use them to perform a business valuation. This valuation is crucial in setting a realistic and attractive asking price. Here, both SDE and EBITDA come into play.

Impact of Add-Backs on Valuation: One of the most important ways your broker adds value during this stage is by incorporating add-backs into the valuation. For instance, if you’ve incurred one-time expenses or non-essential costs, your broker will add these back into your SDE calculation. This can significantly boost your business’s valuation.

Customized Valuation Approach: Different industries and businesses require different valuation methods. Your broker will tailor their approach to your specific situation, ensuring that they leverage both SDE and EBITDA as needed. This customized approach helps to accurately reflect your business’s value and attract the right buyers.

3. Marketing Your Business

Creating an Attractive Financial Narrative: Once your financials are in order and your business is valued, your broker will focus on marketing it to potential buyers. This involves more than just listing your business—it’s about telling a compelling story through the numbers. By emphasizing SDE and the add-backs that increase it, your broker creates an attractive financial picture that highlights your business’s profitability.

Highlighting Profitability: By focusing on the adjusted SDE, your broker showcases the true earning potential of your business. This can make your business stand out in a crowded market and attract serious buyers who see the potential for growth.

Presenting Financials to Buyers: Your broker will present your financials in a way that’s easy for buyers to understand, focusing on the most relevant metrics like SDE and EBITDA. They’ll explain how the add-backs impact profitability and why your asking price is justified.

Overcoming Buyer Concerns: Buyers often have concerns about financials, especially when they see adjustments like add-backs. Your broker will be there to address these concerns, explaining how the SDE adjustments reflect the real profitability of the business. This transparency helps build trust and keeps negotiations on track.

4. Negotiation and Closing

Leveraging Financial Metrics in Negotiations: During negotiations, your broker will use SDE and EBITDA as key talking points to justify your asking price. By demonstrating how the add-backs enhance your business’s value, they can effectively counter lower offers and keep the sale moving forward.

Justifying the Value: Your broker will ensure that buyers understand the full financial picture, using the SDE and add-backs to support the valuation. This can be especially important when buyers question the asking price or seek to negotiate a lower offer.

Navigating the Closing Process: As the sale approaches closing, your broker will make sure that the financial terms align with the agreed-upon price. This includes ensuring that any final adjustments are made and that both parties are satisfied with the financials before signing off on the deal.

Final Adjustments: Sometimes, last-minute adjustments are needed to close the deal. Your broker will handle these, ensuring that the final sale agreement reflects all financial considerations, including SDE, EBITDA, and any add-backs that were part of the negotiations.

5. Post-Sale Support

Assisting with Transition: Even after the deal is closed, your broker’s work isn’t done. They can help during the transition period, ensuring that the financial aspects of the agreement are smoothly implemented. This support can be crucial in maintaining the buyer’s confidence and ensuring a smooth handover.

Ensuring Compliance: Your broker will also ensure that all financial terms agreed upon during the negotiation are honored in the post-sale phase. This includes making sure that any earn-outs or deferred payments are properly handled, helping to protect your interests after the sale.

Conclusion

A business broker does far more than just find a buyer—they play a critical role in maximizing the value of your business through financial preparation, valuation, marketing, negotiation, and closing. By understanding and leveraging key financial metrics like SDE and EBITDA, and by identifying valuable add-backs, a broker ensures that you get the best possible price for your business.

If you’re considering selling your business, now is the time to reach out to a broker who can guide you through this complex process and help you achieve the outcome you deserve.