Selling Decision Analysis

A successful privately held business affords its owner many benefits over an extended period. The entrepreneur enjoys the freedom that comes from calling her or his own shots; and there is no limit imposed on the financial rewards derived from ownership. For most owners, 90% of their wealth is tied up in their business. How does the owner extract this wealth in a tangible way? The logical method would be selling the company outright. Unfortunately, most owners will never harvest this wealth. The US Small Business Administration estimates that only 20% of the privately held businesses available for sale each year are successfully sold.

Deciding how and when to exit a privately owned business is perhaps the single most important financial and personal decision in a business owner’s lifetime. Despite this fact, most owners are not prepared for this lifetime event. The Selling Decision Analysis is a critical tool in the exit planning process. It focuses on two important questions:

  1. How attractive is your business from a buyer’s perspective?

  2. Are you ready to transition your business?

The Selling Decision Analysis involves developing a confidential business profile and conducting a buyer identification process. At the end of the process the owner is presented with a Marketplace Position and Summary of Values Report.

Benefits of Marketplace Position and Summary of Values Report

  1. Benchmarks current condition of the business
  2. Quantifies strengths and weaknesses of the business
  3. Provides a list of personal, financial, and business actions to improve value and sales transaction readiness (buyer’s due diligence review)
  4. Determines where the company fits in the business valuation matrix (low score low value, high score high value)
  5. Produces a range of values based on various sales terms

The report may indicate that an immediate sale is not most appropriate course of action. The owner is then able to make an informed decision based on market realities. As a result, the business need not be exposed to the marketplace while the owner is free to decide on other options. Those options depend on your individual circumstances and include the following:

  • Actions designed to increase value for a later sale
  • Hiring additional management or taking on a partner
  • Engaging workout specialist services
  • Recapitalizing the company to extract equity
  • Liquidate the enterprise and walk away

What's A Company Worth? from Lewis Martin on Vimeo.

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