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.

The first question you ask as a buyer is not directed toward the seller. The first question should be answered by you the buyer. The question is: Do I see myself running the business I’m thinking of buying? Along with other associated questions like: Am I really an employer, or an employee? Do I have the intestinal fortitude to withstand the gut-wrenching day-to-day interplay among employees, clients and vendors? Am I sufficiently capitalized to be successful long-term?

 

Having positively answered the above, never rely solely on the questions that come to your mind. Surround yourself with a business buyer team: a C.P.A. and attorney are minimum; having a financial advisor and lender is normally necessary.

 

Here is a short list of questions addressed to the seller, to which you should get good answers:

 

 

Answers to these questions and others will establish whether or not you feel you can trust the seller. If you trust the seller, and the seller trusts you the buyer, few things will stand in the way of consummating a transaction.

 

-Bradley G. Marlor MBA, CBI is a Managing Partner at Utah Business Consultants and a Certified Business Intermediary. Utah Business Consultants is a full-service Business Brokerage and Valuation firm.

Sellers are often asked, “do you think you will ever sell your business?”  The answer varies from, “when I can get my price” to “never” to “I don’t really know” to everything in between.  Most sellers may think to themselves when asked this question, “I’ll sell when the time is right.” Obviously, misfortune can force the decision to sell. Despite the questions, most business owners just go merrily along their way conducting business as usual.  They seem to believe in the old expression that basically states, “it is a good idea to sell your horse before it dies.”

 

Four Ways to Leave Your Business

There are really only four ways to leave your business.  (1) Transfer ownership to your children or other family members.  Unfortunately, many children do not want to become involved in the family business, or may not have the capability to operate it successfully.  (2) Sell the business to an employee or key manager.  Usually, they don’t have enough cash, or interest, to purchase the business.  And, like offspring, they may not be able to manage the entire business.  (3) Selling the business to an outsider is always a possibility.  Get the highest price and the most cash possible and go on your way.  (4) Liquidate the business – this is usually the worst option and the last resort.

 

When to Start Working on Your Exit Plan

There is another old adage that says, “you should start planning to exit the business the day you start it or buy it.”   You certainly don’t want to plan on misfortune, but it’s never too early to plan on how to leave the business.  If you have no children or other relative that has any interest in going into the business, your options are now down to three.  Most small and mid-size businesses don’t have the management depth that would provide a successor.  Furthermore liquidating doesn’t seem attractive.  That leaves attempting to find an outsider to purchase the business as the exit plan.

 

The time to plan for succession is indeed, the day you begin operations.  You can’t predict misfortune, but you can plan for it.  Unfortunately, many sellers wait until they are forced to sell their business due to health, economic, or other issues; or they wake up one morning, don’t want to go to their business, drive around the block several times, working up the courage to begin the day.  It is often called “burn-out” and if it is an on-going problem, it probably means it’s time to exit.  Other reasons for wanting to leave is that they face family pressure to start “taking it easy” or to move closer to the grandkids.

 

 

 

Every business owner wants as much money as possible when the decision to sell is made.  If you haven’t even thought of exiting your business, or selling it, now is the time to begin a pre-exit or pre-sale strategy. To help you formulate your plan, you should form a professional services team consisting of an attorney, CPA, financial planner, and business broker. You should meet at least once a year to update your plan.

 

Wayne A. Simpson CPA, M&AMI is a Managing Partner at Utah Business Consultants and a Merger & Acquisition Master Intermediary with the M&A Source. Utah Business Consultants is a full-service Business Brokerage and Valuation firm.

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