When consulting with business owners, valuation often comes up as a point of discussion. Recently, we were working with the owner of a distribution company that closed some of its locations due to restrictions and complications with meeting demand during the pandemic. This had a negative effect on sales, but profits went up due to new pricing and added value to the product.
Does the loss in sales damage your value to potential buyers? The short answer is “No”. The value should increase because of the improved margins, less operating costs, and a more efficient operation. The potential buyer can also go back and re-open the closed stores with this new and improved business model.
As brokers, this is a classic three-step deal structure.
- Cash-out at 80% of the value.
- 20% seller finance.
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Earn-out variance to get the closed locations back up and running.
