The Myth: A business is worth only what someone will pay for it

The first question raised by business owners looking to sell their business usually revolves around valuation: "What is my business worth?"

And the most common answer they get is that a business is only worth what someone is willing to pay for it.

That line is everywhere!

Search Google for that text and you'll find thousands of results. Articles, blog posts and forum discussions are unanimous in their view that, when it comes to business valuation, beauty is in the eye of the beholder.

These articles continue to explain that whatever the underlying assets, strengths, earnings or prospects of the business there may be financial formulae that can estimate value but, in reality, it's not till the business goes to market that its owners know what buyers will be willing to pay.

Their conclusion: The buyer is the one who decides the worth of your business.

I say it's time for a rethink. 

The business is not worth only what someone is willing to pay for it.

It's worth what you can get someone to pay for it.

Selling a business is essentially a selling job.

It's not about what buyers are willing to pay ... it's about what you (or your broker) can negotiate.

A large part of the price achieved - in fact it's often over 50% - depends on the skills of the vendor  (or the advisers he's using) i.e. it's not based on the intrinsic value of the business such as assets, earnings, EBITDA etc.

The Five Ps of the broker value-add:

  • Preparation prior to sale;
  • Packaging;
  • Presentation, including copy of the teaser ad. and Information Memorandum;
  • Promotion, including the where, how and to whom; and
  • Persuasion - the ability to negotiate a good deal against the toughest negotiators.

However attractive your business is to buyers you will not get top whack unless you actively work towards getting it! And there are specific things your adviser can do to attract the buyers who'll value your business not on the earning or the assets, but on the potential the buyer/s can develop. Get in touch if you wish to discuss how I do it or if you would like me to assist you.