Manage Your Expectations
by Kelly Deis of SoundPoint Consulting
Most business owners do not have a realistic idea of what their businesses are worth. Owners almost always think that their business is worth quite a bit more than the market would likely bear. There are several reasons for this.
1. Emotional Ties: Owners are personally and psychologically tied to their business. This is particularly true for long-running family businesses.
An owner has poured their heart and soul into their business. Where others may see a mundane business, owners – like proud parents, see their business as an apple of their eye. This emotional tie may cause a disconnect with the realities of the market.
2. Lack of Analytics: Most small business owners do not have a grounding in the analytics which determine a company’s value.
Sadly, I have run across several owners who negotiated a purchase price for their businesses with their gut, and ultimately overpaid. Now, they are hoping this is the baseline for the current valuation. Not surprisingly, this is not a criterion for prospective buyers. Most buyers value a business based on its cash flow. The original purchase price rarely – if ever, is a factor.