Explore some of the myths of business valuation. Many owners think their business is worth a whole lot more or they will sell it easily when the time comes to sell.
So here are some common misconceptions on the value of a business…
I Don’t Need to Value My Business Because I Know What Some Similar Businesses Are Worth: This is the common misconception of lots of business owners – that they can value their business looking at similar businesses in the market. It is because there are so many variables in a business valuation that you should not just assume the value of your business based on other businesses. It is always better to value your business based on all of your business’s factors.
If Your Business Loses Money, It’s Not Worth the Time & Money To Value It: A business that appears to be losing money may actually be doing well. For example, many small businesses often give out large bonuses and/or other rewards at the end of the year. By doing so, it may appear that the business is not worth much. Also, just because a business shows no profit that does not mean that it is not profitable. A good business broker can properly analyse your figures and adjust the net profit according to well established accounting procedures. Also, there are other measures of value outside profit and an experienced analyst can advise you of this.
I Only Need to Value My Business When I Am Going to Sell or Buy It: Generally people think that the time for their business valuation is at the time of selling or buying the business. Yes, they are right that business valuation should be done at the time of selling or buying a business. However, most business owners ignore the fact that a business should be valued regularly while running the business. Every business owner should have an exit target price and if you don’t have a current valuation you don’t know the size of the gap between current value and target value.
There Will Always Be A Buyer For My Business: Another common misconception made by most business owners is that there will always be a buyer for their business. Not so. Across the sector, a good number of business fail to find a buyer due to insufficient knowledge of the buyer market. And finding a buyer is increasingly a challenge for owners due to inaccurate valuation of the business.
I Should Sit And Wait For Buyer To Come And Approach: You will be very lucky if someone taps you on the shoulder and wants to buy your business. However, this can be a long and unfulfilled wait, and often means that the necessary preparations for sale are not ready. It can also involve a lack of competitive bidding tension as the buyer knows it the only interested party at that time. A better outcome for owners usually comes from a proactive, process-based and time limited approach to finding a buyer.
My Business Is Well Run And Ready For Sale: Most owners think that because they are running their business well then the value of the business is at maximum level. You would be surprised to learn just how many businesses are not well prepared for sale.