Many of us have been there. We’ve thought to ourselves, I’ll work hard for X number of years, then I’ll sell the business and retire off the proceeds. They imagine themselves traveling, sitting on a beach somewhere warm with a cold drink, or just enjoying the fruits of many long years of labor. Unfortunately, that’s not always the case. Too often, we have begun working with business owners after they realized they would not be able to sell their business for what they thought they would be able to, only then to realize they are behind the 8-ball for saving for their retirement. Their dream of finally taking that long riverboat cruise trip in Europe quickly turns into the realization that they must work longer to save enough to retire.
Sometimes the reason the valuation isn’t what they were expecting is out of their control. It could be due to a recession, changes in regulation, or changes in business demographics. Other times business owners are too close to the business and think it’s worth more than it is. Whether or not your business is really worth what you think it is depends on several factors, including:
- The methodology you used to value your business. There are a few different methods for valuing a business, and each method has its own strengths and weaknesses. Some methods are more subjective than others, and some are more reliable in certain industries than others.
- The assumptions you made in your valuation. When you value your business, you need to make several assumptions about future performance, such as revenue growth, profit margins, and risk. If your assumptions are too optimistic, your valuation may be too high.
- The market conditions at the time of valuation. The value of your business will be affected by the overall market conditions, such as the availability of credit and the demand for your products or services.
If you are unsure whether your business is really worth what you think it is, you should consider having it valued by a qualified business appraiser. A business appraiser will use their expertise to assess the value of your business based on a variety of factors like the industry it’s in, the size of the business, the profit margins, and so on.
Here are some suggestions for determining whether your business valuation is realistic:
- Compare your valuation to the valuations of similar businesses. Look at businesses in your industry that have been sold recently and see what they sold for. This will give you a good benchmark for what your business might be worth.
- Consider your business's unique strengths and weaknesses. Are you the market leader in your industry? Do you have a strong brand? Do you have a loyal customer base? These factors can all increase the value of your business.
- Think about the prospects for your business. Are you planning to expand? Are you developing new products or services? Are you entering new markets? These factors can also increase the value of your business.
If you are confident that your business has strong fundamentals and bright prospects, then it is likely that your valuation is realistic. However, if you have any doubts, it is always best to have your business valued by a qualified professional. We work with many professionals who have helped entrepreneurial clients with not only valuations, but also all the other issues that will inevitably arise during a business sale, like taxes, legal concerns, and more. Reach out to us for a consultation to answer any questions!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.