Obtain the Best Possible Purchase Price for Your Business

When it’s time to sell, every business owner’s ultimate goal is to achieve the highest possible purchase price for their business. While confidentiality throughout the sales process is key, the seller’s main objective is to secure financial freedom and long-term security. To ensure this, hiring the right business broker is essential. A skilled broker can help you achieve the best price by identifying the true “owner benefit” of your business, ensuring proper global advertising to create a liquid market, and exploring financing options with potential buyers.

Maximizing the ‘Adjusted Owner Benefit’
The adjusted owner benefit is the annual amount of true economic profit derived by a working owner from the business. Often referred to as Seller’s Discretionary Earnings (SDE), it’s a crucial figure in determining the business’s value. Buyers typically base their purchasing decisions on the advertised adjusted owner benefit, which is often multiplied by a factor (typically between 1.5x to 4x or more) to estimate the business’s valuation.
If the adjusted owner benefit cannot be substantiated with solid financial documentation, such as tax returns, bank statements, or POS reports, the business’s valuation will be negatively impacted. This is why it’s critical for sellers to maintain accurate and professional accounting records for their business.

Example: Maximizing the ‘Adjusted Owner Benefit’

Let’s walk through an example of how a business broker can help maximize the adjusted owner benefit.
Scenario: John is looking to sell his auto repair shop, John’s Auto Shop, and hires a professional business broker to help with the process.

Step 1 – Financial Review: The broker begins by analyzing John’s financials to determine the adjusted owner benefit, which will play a major role in the shop’s valuation.
Step 2 – Tax Return Analysis: Upon reviewing John’s most recent tax return, the broker identifies that the annual EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) of the business is $200K.
Step 3 – Add-backs: The broker adds back personal expenses listed on the tax return. In this case, these add-backs total $50K. John confirms these were personal expenses and would not apply to a new buyer.
Step 4 – Owner’s Salary: John pays himself and his wife a combined salary of $100K. Since John’s role in the business is replaceable by the buyer, this salary is included in the adjusted owner benefit as it remains an economic benefit to the new owner.                                                                                                          Step 5 – Unreported Income: John discloses an additional $50K in unreported cash income. Provided this can be verified to the buyer’s satisfaction, this amount is also included in the adjusted owner benefit.
Final Calculation: Combining all these factors, John’s adjusted owner benefit is $400K per year, significantly higher than the initial EBITDA of $200K.

As a result, the valuation of John’s Auto Shop is based on an adjusted owner benefit of $400K/year, providing a much higher sale price compared to a lower EBITDA-based valuation.

Maximizing the adjusted owner benefit through proper documentation and strategic financial planning can significantly increase the sale price of your business. Working with the right business broker can help you present your business in the best light, ensuring you achieve the financial outcome you deserve.

For more about maximizing business value, visit SCORE’s guide on business valuation.