Up until a year ago the business owners usually had a pleasant surprise…their land was worth more than they thought.

However, in the declining economic climate, the reverse is often true…the land on which the business sits is actually worth less money than it was just a year ago.

Why? Because many banks greedily allowed overzealous builders and developers to overbuild real estate projects and now the entire Northwest Arkansas landscape has empty and/or foreclosed buildings.

That is NOT good news for business owners who have real estate as one of the assets they are selling with their business.

So…what can we do to help a business owner determine the value of real estate in today’s market?

About six years ago we at CBI-Sunbelt Business Advisors of the Ozarks came up with a relatively low cost method of doing that. We made arrangements with local certified real estate appraisers to do a short form real estate appraisal. The appraisers did the ground work and research to come up with a value of the real estate but didn’t do a formal report, just a one page report that gave the business owner a realistic idea as to the value of the real estate but at less than 1/3 the cost of a typical commercial appraisal.

The seller could then get a realistic idea about the value of the real estate and determine if it made sense to sell the real estate as an asset of the business.

However, in most cases, it is better from a tax perspective for the business owner to lease the property to the business buyer. The buyer can often get the seller to give an option to purchase at some point in the future.

It’s generally a win-win.

However, sometimes the buyer needs to purchase the real estate so the collateral value of the real estate helps support the purchase price of the business from a bank lending perspective (if you can find a bank making business loans these days)! If the buyer needs to purchase the real estate the seller can make his appraisal available to the buyer and the buyer’s bank. Since the appraisers are certified they can generally complete the bank’s formal appraisal in less time and for less money and the seller can often be reimbursed by the buyer for the seller’s initial expense (paying for the appraisal) as part of the closing costs.

That’s a WIN-WIN and that’s what we at CBI-Sunbelt Business Advisors like!!

Creatively helping business sellers and buyers to secure their financial future!

Is there a difference between the meanings of these two terms?

Most business owners will fall into a trap if they don’t know the difference before planning the sale of their businesses.

Business buyers think “blue sky” is the same thing as “Good Will” and, if the business owner doesn’t correct them with the right information and definition then the business owner probably won’t get paid for the hard work poured into the business.

Blue sky is just that….look up and what can you see? Only blue sky! It can’t be measured and a savvy buyer won’t pay for it.

Good Will is a measurable asset of a business, if the business has any. If you have it you can get paid for it as part of the purchase price a buyer will pay for the business.

Measuring Good Will is part of any certified, independent, third party business appraisal, which is why every business owner should have one so Good Will becomes an asset that has a value assigned to it by a professional business appraiser.

In basic terms Good Will is tied to the net cash flow or EBITDA (earnings before interest, taxes, depreciation, amortization). This is also described as “cash flow” but good business brokers and appraisers know that cash flow is more than EBITDA. There are almost always other expenses that can be “added back” to EBITDA to reveal (not create) the SDCF (seller discretionary cash flow), which is sometimes called TON (true owner’s net).

In essence, it is the amount of money the current owner of the business can prove is going into “Hip National Bank.”

Please note the word “PROVE.”

There must be a paper trail that a buyer can follow to see all the income and expenses of the business or the seller won’t get paid for it.

A professional business broker is trained to help a business owner do a recast of income to find the SDCF and TON which is the key number to placing a value on the Good Will of the business.

Once the SDCF is revealed then a formula is applied by the business appraiser based on the financial history and trend of the business.

It is complicated and business owners should only depend on professional business appraisers to establish the value of Good Will.

Once that value is established and certified to by a business appraiser then the business owner has the opportunity to be paid for it.

If you are a business owner and want to know if your business has any Good Will and if you can get paid for it, then contact a CBI-Sunbelt of the Ozarks broker today for a free, no-obligation consultation.

He knew that general knowledge of his intent to sell the business could cause great economic damage to the business value:

• Employees find out and look for other jobs or become more difficult to manage
• Customers seek other business relationships
• Vendors and bankers become more skeptical about their relationship with you and your business

As a business owner you must be concerned about how your business is marketed.

CBI-Sunbelt has perfected methods of confidentially marketing your business to the local, regional, state, national and international business buyer community.

All of the confidential methods used by CBI-Sunbelt are designed to attract the largest number of prospective buyers to look at your business.

Ask your CBI-Sunbelt Advisor about the exclusive confidential marketing program that has helped sell hundreds of businesses.