How much is your business worth?
No one can answer this question without first performing a professional business valuation (PBV).
The general answer is, the business is worth its Fair Market Value (FMV). FMV is defined as the value at which a willing buyer would buy, and a willing seller would sell with neither under any compunction.
Under what conditions would a buyer and seller agree on the value of a business? Four fundamental factors must be considered. Price, Value, Perceived Risk and Perceived Uncertainty. Sellers think in terms of Price. Buyers think in terms of Value. However, Price and Value increase or decrease based on the level of perceived risk and uncertainty. In the consideration of Value and Price we cannot ignore the impact of human emotion. I add perceived to Risk, Uncertainty and human emotion because these are not absolute factors but are driven by the experience and perception of the individual buyer and seller. Perceived factors must be managed throughout the buy/sell process.
Why is business value expressed as a range of value? A professional valuation must consider the perception of risk and uncertainty and the possible impact of human emotion. The actual calculation of valuation is relatively straight forward. There is a generally accepted process involved. The variables of risk, uncertainty and emotion cannot be resolved to one answer. There are many possible results. This is the primary reason why businesses are valued as a range of value and a likely selling point with in the range. For example, your business is valued between $X and $Y with a likely selling price of $Z.
Now consider, annually industry statistics show that 85% to 90% of businesses listed for sale never sell! Another factor to consider is since the statistics refer to “listed for sale” those transactions included the services of a business broker. There is a proven process to sell businesses. The businesses that fall into the 85% - 90% that do not sell, all have at least one thing in common. They did not follow the proven process!
Selling any business is a complex process. There are many variables to consider. The range of value for a business is impacted by its financial history, concentration of its customer base, management structure, quality of earnings, level of competition, profitability above or below the averages for similar companies and many other possible factors. Any of these factors could impact the perceived risk and uncertainty. Embedded in these factors is The Principle of Substitution. Simply stated, this principle explains that Buyers have choices and will not pay more for your business than what they would have to pay for an equally desirable substitute.
Your business is likely a significant part of your wealth portfolio. Most business owners will only sell a business once. You owe it to yourself to take the steps to get it right the first time. How do you do that. Engage the services of a professionally trained business intermediary. The gold standard is credentials conferred by an independent organization that focuses on buy-sell transactions.
In addition to having purchased and sold my own business, I have earned the top 3 credentials for a Professional Business Intermediary (M&AMI, CM&AP and CBI). If you are considering selling your business and would like to know more about the proven process to sell a business, don’t hesitate to contact me.
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