The role of the broker in business valuation

  • by Sam Lewis 

Interview with...

Ken Ducey, CEO and business broker, Fairfield Capital
Topics covered:
Business valuation
CV:
Experienced business broker 
Expertise:
Firm offers mergers and acquisitions, valuation, deal negotiation, buyer search, and targeted marketing advisory services 
Location:
Ridgefield, Connecticut

BusinessesForSale: How do you go about valuing a business?

Ken Ducey: It is one of the trickiest things in the business community and its unfortunately a lot more art than it is science.

There are almost never two different businesses that are alike. With most commodity items out there like a car, there is some sort of comparable that you can look at

…But when you talk about selling your business they are so wide-ranging in terms of customer concentration and consistency of their revenue it’s very very difficult to really put a price on it. 

Obviously the less risk then the greater value there is to that business for that buyer and vice versa…

What can we predict and have assurances over regarding revenues and profits over the next three, five, ten years?

BFS: Are there any particular sectors where it is difficult to give a value?

KD: It’s not really the brokers it’s more the buyers. I can put literally ten experienced buyers in a room and present them with the same business and they’ll typically come up with a very wide range of values.

What it really comes down to is what risk is there for a potential buyer in that business?

Obviously ten or 20% difference on $5million can be up to a million dollars.

When you’re talking about this with a business is going for say $2million or $5million, then you could be talking about a ten percent difference of a closely held company.

You’re talking about a huge range in terms of what the person who owns the business is going to receive

That is a very big difference so that’s where you need to get an intermediary, as we believe that we are real good at finding a buyer who is going to value your business and give it that extra 20% in terms of value and be able to sell it that way.