4 Dangers of Not Knowing What Your Business is Worth
If you are considering selling your business, and you don’t have a strong handle on the value of your business….you could be opening yourself up to significant danger. Here are four dangers to be concerned about:
1) Leaving Money on the Table
Because you don’t have a handle on the business value, it is very possible to take a sales price to market that is too low. As a result, you may end up leaving money on the table. Many components factor into a business value: permits, accounts, market location, vehicles, etc. It is important for you to have a strong understanding of each component’s value, so you do not leave money on the table.
2) Failing to Address Hidden Problems
One of the primary functions of a business valuation is to not only give an owner an understanding a business’ worth in the current market, but also to identity key areas that are affecting the value of the business—positively or negatively. In many cases, operators come to CTA well in advance of selling their business with the expectation of identifying opportunities for improvement so when the operator does sell his business, he can earn more proceeds. Without a valuation, you risk the danger of not correcting problems that could dramatically affect the proceeds from your business sale.
3) Prolonging the Selling Process—Operators sell their businesses for multiple reasons. They all lead to “moving on” to something new or starting a new chapter in your life. As business brokers, our job is to help you get to that next chapter as soon as possible—by helping you sell your business in a timely manner. A valuation is critical in determining what price to take to market. It is very common to think a business is worth more than it really is or to price a business based on what “you need” rather than what the current market value really is. Taking an unreasonably high sales price to the market delays your ability to move on to the next chapter in your life. Additionally, it wastes time and money for everyone involved. And much like in real estate, when a business is presented to the market at an unreasonable price, it is always looked at funny—even when the sales price eventually comes down. Finally, a motivated buyer is usually looking at other businesses, other than just limousine businesses. If the price is too high, your business may be passed by for other businesses that are priced to sell quickly to savvy motivated buyers. You may not get the chance to even negotiate. (You have to get on the dance floor to dance.)
4) Weakening Your Ability to Negotiate: Whether you understand your business value or not, you can be assured that an astute buyer will do his homework and know plenty about your business while in the process of considering buying it. More importantly, an experienced buyer will easily identify when you don’t know what you are doing and leverage that in every way that he can. You can be extremely disadvantaged when negotiating in this weakened position. Having a formal valuation equips you with a strong understanding of your business’ value and the confidence to communicate that value convincingly at the negotiating table. You have worked too long and too hard to be bullied at the negotiating table. Information is power. Make sure you have the best possible information and plenty of it.
For more information about obtaining a valuation, contact Spencer Tenney via email at stenney@charlestenney.com
