What criteria govern the sale of a service-based business, e.g. a translation company?

Question

I own a small, yet established and successful translation company. I'd like to sell it within a few years. To plan for the sale, it would be good to know what's most important: annual sales figure? profits? goodwill? Some buyer might say "Your sales figure is great, I don't care about your profits, since I'll apply my own procedures and pricing and make a better margin", while another might say "All I care about is your profit margin: what is it?". Then, what's the best way to go about selling it? Business brokers? Private agreement? Any helpful info will be greatly appreciated. Thanks.

Answer 1

The three basic financial statements used in the accounting evaluation of a business are the balance sheet, the income statement and the statement of cash flows. Often one reviews the statement of owner's equity as well. If you are or your accountant are using some of the basic accounting software such as QuickBooks, these statements are easily prepared from the data from your general ledger and subsidiary journals. May I suggest that you should be reviewing these statements each month. Review of these statements will provide you with the necessary information to effectively manage your business.
If I were to evaluate a business for purchase, I would want to examine these financial statements and some of the underlying supporting documents such as invoices, payroll checks and bank statements. If your firm is a sole proprietorship, you annual tax return would be of interest as all the firms income is your personal income. One can use the financial statements to derive any number of ratios such as gross profit margin,days in accounts receivable and return on assets.
You will earn the most from the sale of your business if you do sell it yourself. A broker charges a commission. You might investigate trade journals for ads that document like businesses for sale. You might consider employing a CPA if you need help with the development of finanical statements and valuation of your business.