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The Downsides of Overvaluing Your Business

By January 15, 2017 No Comments

When thinking about selling your business or preparing to do so, assigning the proper value is very important. An entire segment of our customer service at Utah Business Consultants is dedicated to helping people like you consider all the factors involved before setting the right value on your business, and we know how vital it is.

The benefits proper business valuation are somewhat self-evident, but on the flip side, the downsides of improper valuation can be more severe than you might think. Many might assume that the worst that will happen if you value your business too highly is you won’t get any bites, and you’ll have to reduce the price – this couldn’t be further from the truth. Let’s look at a few of the specific downsides of overvaluing your business.

Reputation

No matter what industry your business operates within, your reputation is a very big deal. It’s a factor in every major marketplace on earth, and consistent overvaluing of a business is a very quick way to lose part of that reputation among your peers and potential business partners.

If you’re consistently overvaluing in a way that seems shady to people on the outside, they might assume you’ll be the same way in any business dealing. If you’re straightforward and present robust figures, however, it bolsters your reputation and makes others more willing to work with you when other choices are on the table.

Investors

Many businesses require investors who are part of the long term process, and trust between you and your investors is vital. Will investors be interested in working with you on future projects if you overvalue your company and complicate or even torpedo the sale process? Maybe, but it’s certainly less likely.

Larger Market Dynamics

This is less of an individual concern than the two broad areas above, but consistent overvaluing of businesses in the marketplace creates inefficient market dynamics. It sets a standard that vendors and buyers inherently adjust to over time, which can cause inflation and a normalization effect that can make proper valuation more difficult and eventually nearly impossible. It’s a vicious circle after it goes on long enough – everyone just accepts the new norms, and no one benefits.

Need to know more about properly valuing your business, or any other part of exit planning or selling your business? Utah Business Consultants is a top business broker in Utah, and our expert staff is standing by to serve your needs.