Is it the right time to sell your business?

Ken Ducey on sellers who refuse to accept their valuations are inaccurate…

“It’s definitely a difficult area and the biggest issue is that a seller will always bring up a story of someone else who received a certain amount for their company, and they believe their business is very similar.

“But there are problems with that. One is that a peer says ‘hey, I received X dollars for my business.’

“But what does that mean? Did they receive that in cash or did they receive zero down in cash and some sort of earn-out, some sort of projected value that they’re supposed to get over five years?

“Number two is that the other business might have had some sort of proprietary technology or a whole bunch of things that made that business very different.

“The best way of getting round that is by using statistics likes those on BusinessesForSale.com, and we show them what other businesses have got, and what sort of multiples businesses [typically] get, and obviously as the business goes on, and they see professional investors or strategic buyers come in and value the business, that’s when they’ll learn that the business isn’t really worth what they might have thought.”

On getting a preliminary, ballpark valuation from a broker…

“They could look at places like BusinessesForSale.com and see what other [similar] businesses are listed for.

“But the most important thing to tell business owners is: ‘Don’t make it about what your business is worth or who might give you the most value; make it about you.’ In other words, if I own a business there’s a reason why I want to sell and exit that business.

“Let’s just say that you’re younger and you have to spend money on your children or whatever – well it’s going to be a higher number that you have to receive from that business. Vice versa, if you’re older and you’ve put a lot of money away, you’ve got some sort of annuity in terms of investment and you want to sell your business, you might just want enough money to buy a condominium, vacation home or to leave an inheritance to your children or whatever it might be.

“The most important thing is starting from there, as that’s going to drive it more than anything else. That’s how you want to start the process. It might not be the time to sell. You might have to go back, put certain things in place and make the business more valuable.

“Or vice versa, if it is the time to sell and the business is worth it, when you look at the valuations and you understand that there might be a wide range of them, it should just matter that you come to the process and say ‘here is the number I want to meet my goals. Is that a number that you can get for my company?’

“And if they say yes, then you go forward, and if they say ‘absolutely not’ then, like I said, it probably isn’t a great time to sell your company and it’s not a process you even want to start.”