What's Your Business Really Worth?

Have you ever sat back, looked at your business, and wondered, "What's my business really worth?" Or, “if I were a buyer, what would I pay for my business?” It's a tricky question. And let's be honest, most business owners have a tendency to see their business as the proverbial 'golden goose.' That's not surprising considering all the blood, sweat, and tears they have invested over the years. Yet, here's a reality check - many business owners have an inflated perception of what their business is worth. In fact, over 80% of businesses listed for sale never actually sell. There are many reasons for this, but one key reason is that business owners think their business is worth more than it is and therefore turn down offers that don’t meet their expectations.

Understanding Business Valuation

Before we dive into why this overestimation happens, let's first understand how to value a business. For most sectors, there is a rule-of-thumb approach to valuing businesses based on their financials; usually a multiple of revenue or profits. However, this oversimplified approach omits key factors that drive the value up or down such as; diversification of the customer base, dependency on a key person, quality of financials, and the extent to which processes are documented and systematised.

The Perception Gap

Now let's talk about why owners tend to overvalue their business. Part of it is emotional. Your business is your baby. You've nurtured it, invested in it, and it's part of your identity. So, it's natural to put a higher value on it. Then there's the 'sweat equity' that we mentioned earlier. But here's the kicker - the market doesn't care about your emotional connection or the long hours you've put into it. Potential buyers look at numbers, the operations of the business, potential profitability, and market conditions. They see your business through a very different lens, leading to a perception gap.

The Real Cost of Overestimation

Overestimating your business's worth can be costly. Unrealistically high expectations scare away potential buyers as the see it as a waste of time engaging with the seller, and move onto the next opportunity. Your business remains unsold, stagnating while others are being snapped up. Remember that statistic about 80% of businesses listed for sale never selling? Overpricing is one of the major culprits behind that.

Strategies for a Realistic Business Valuation

So how do you get a realistic picture of your business's worth? One way is to get a professional business valuation. Not a cheap, or free one, but a full, comprehensive valuation that evaluates every aspect of your business in detail. They look at your business objectively, focusing on the factors that potential buyers consider. They can help you understand the financial health of your business, including aspects you may have overlooked, and they can identify the key areas of the business that need to be worked on in order to obtain the valuation you are hoping for.

Making Your Business More Attractive to Buyers

And of course, you'll want to make your business as attractive as possible to potential buyers. Clear financial records, a stable customer base, no dependency on any individual, efficient and systematised operations – these are the things buyers are looking for. They not only contribute to your business's value but also make it a more appealing prospect.

Conclusion

In the end, it all boils down to this - what's your business really worth? Not what you think it's worth, but what it's actually worth in the real world and what someone will pay for it. It's a tough pill to swallow, but getting a realistic assessment is crucial to successful business sales. For many business owners, it may be time to take off those rose-tinted glasses, take a hard look at their business, and adjust their expectations. It might be the difference between a stagnant listing and a successful sale.

More information:

• Get our free report on how to prepare your business for exit so it sells for the highest valuation possible:?here .
• Visit our website to see how we might be able to support you on your journey:?synergyaccountants.co
• For anything else, send me a message on Linkedin