Benchmark Business Group

How Much Is Your Business Worth?

October 7, 2014

You've built your business with a great deal of hard work, dedication, money, sacrifice, and plain old pig-headed determination. You are really good at what you do, and your business is known for the quality it provides. You have dozens, hundreds, maybe thousands of loyal customers who sing your praises and continue to buy your goods or use your services. You have loyal employees who have been with you for many, many years; and the business has given you and your family a decent living, in spite of some "ups and downs" over the years. You are now getting closer to the "reality of your mortality", the fact that eventually a transition is going to happen, voluntary or involuntary. But as Michael Gerber, best-selling author of the E-Myth books says, "The only sane reason to own a business is to sell it."

 

Sounds like you have a formula for a valuable business that anyone would pay top dollar to own, right? Sounds like a business that should be worth a lot-a business that will surely pay back all of that "sweat equity" and everything else you have put into it over the years. This business is, after all, a major part of your retirement plan, right? Perhaps it is your retirement plan! But how saleable is your business, really?

 

In 2011, we made an acquisition into the business brokerage industry, and Henderson Business Group became a business unit of Benchmark. In our experience, the great majority of businesses we have encountered have a value far less than the owners feel they are worth, or in many cases, no value at all apart from a few physical assets. 

 

Business Owners are often unwilling to accept the reality that:

  • buyers are unwilling to reimburse them for all of the years of investment and work, regardless of how much revenue and profit the business actually produces currently;
  • buyers are not willing to overpay for the privilege of buying a "job" that will require them to work long hours and risk their own life savings;
  • buyers are not interested in paying for all the wonderful "potential" a business has when the current owner has not been able to capitalize on that potential themselves;
  • buyer's source of funds, their bank, thinks the business is worth even less, based on actual cash flow.

The businesses that buyers are unwilling to buy are those that are operated by "technicians".  The overwhelming majority of these businesses are highly dependent on the owner, or the owner and certain key employees, to even work. Without them, the business would rapidly deteriorate, or even fail instantly.

 

Build a Business that Buyers WILL want to Buy

The good news is your business can sell for a value much closer to your dreams, but for reasons that get your buyer's and their banker's attention. This week we challenge you to step outside of your own point of view and think about the eventual transition of your business, because it will happen. Don't think about all the years of hard work you've put into this business. Don't think about all the potential you know exists. Instead, think of your business exactly as it is today and ask yourself, "Why would someone want to buy my business?"

 

Don't forget to join us this month as we look at what buyers look for when buying a business and how you can build your business to have value. Value that will pay you back for the "sweat equity" you've put into your business over the years and fund your eventual retirement.

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