The Value Gap
by Kelly Deis of SoundPoint Consulting
Have you ever heard of it? Well, if you are thinking of selling your business in the next few years, it is a term that you should get familiar with.
The value gap is the difference in price between what the seller thinks his/her business should sell for and what a buyer is willing to pay for it. Bluntly, it is unrealistic expectations on the part of the seller.
Sadly, it is one of the bigger reasons why deals go awry in the lower-to-mid market tier. And, it can be avoided.
Causes of the Gap
There are a variety of reasons why a seller may think that their business is worth more than what others are willing to pay for it.
Don’t make the all-too-common mistake of dismissing the value of planning for your business. Every well-run business needs to manage strategy, tactics, milestones, metrics and essential business numbers.
Do it right, and planning is easy to do, great for managing and developing accountability.
Remember these two key points:
- Good planning doesn’t require a big, formal, traditional business plan document. A lean business plan is much easier than a traditional plan. It just consists of bullet-point lists and tables. You can do it yourself.
- What really makes the difference is keeping the plan live. It doesn’t take more than an hour or two per month. The planning process means you track results, review, and revise often enough to keep your plan fresh.
I read with interest how Jeff Bezos, founder of Amazon, described his philosophy around “Day 1.”When asked what Day 2 looked like he described it as “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that’s why it is always Day 1.”
Personally, I love this approach. I mentioned it recently to a group of entrepreneurs in the Emerging Leaders class here in Seattle and it seemed to fit in perfectly with what they are working on. They have all been in business for 3 or more years and are now creating new strategic growth plans for their businesses of the future. In order to do this without all the “constraints” that experience and beliefs dictate are “true,” we have to look at it as Day 1, and then consider – what will you do differently?
Think of it like Groundhog Day. You get to keep doing it over and over again but with a different template, different knowledge, and a different environment. If you were recreating your business, what would Day 1 look like now? Who’s to say you can’t give it a try? Continue reading
by Gerri Detweiler
Carolyn Walters’ small business clients know they can ask her more than just tax questions. While “tax is the heart and soul of what I do,” she says as the owner of Financial Solutions Accounting and Tax in Greensboro, NC, she has expanded her business to offer a variety of different services.
“The challenges that small businesses have usually end up in my lap one way or another,” she says with a chuckle.
Walters wants to be the first resource her small business clients turn to when they have questions about small business financing and credit. “Quite a few of my clients are looking at ways to expand and grow their businesses, and that takes money,” she says.
Some of them have the funds they need to grow, but others will need to borrow. And even those who don’t have to borrow may find it advantageous to do so. “If you can get credit at low rates and still maintain the integrity of the business goals you are trying to accomplish, it may make sense,” Walters says. Continue reading
Rather than building a small business from the ground up, buying an existing company offers the opportunity to move along the path to entrepreneurship more quickly. With all of the startup tasks already taken care of, a staff in place, an established customer base, existing vendor relationships, and processes and procedures laid out, you have a head start.
But that doesn’t diminish the importance of doing your research before making the decision to buy. Acquiring an existing small business requires substantial examination so you can avoid the many pitfalls that befall eager entrepreneurs who leap before they look. Continue reading