There is a quick answer – but it’s the opposite of the classic response
It’s THE question every owner wants to ask a business broker: What is my business worth? Even those with no intention of ever selling want to know the answer. And – let’s be honest – all of us are hoping for that quick and ego-pleasing response: “It’s worth far more than you ever dreamed”. Brokers, though tend to be coy when asked for a quick, ‘rule of thumb’ figure. Their classic answer – “It’s worth what someone will pay” – might be logical, but always feels like a disappointing cop-out. Why can’t they give a more meaningful answer, especially when – as we shall see – one is at hand?
Sometimes, it’s because the person you are asking doesn’t negotiate sales and thus lacks the necessary intimate and up-to-date market knowledge. Usually, though, it’s because a good business broker knows that the number of variables affecting the value of any business is so high, it makes valuing, say, a car or a house, look like early-stage child’s play. When you say ‘profit’, do you mean before the owner’s earnings, or after? How dependent is the business on relationships with you or other or key executives? What intangible assets do you have, such as strong distribution networks ripe for cross-selling, or clients in an expanding sector? What latent potential liabilities might exist? How will your staff react to a sale? The list goes on and on.
As a result, brokers know that any ballpark figure they may give is almost certain to be wrong and probably misleading. This point is only reinforced by online forms which attempt to take you through ’20 questions’ and then give you a precise figure. That figure is invariably incorrect because, as we have seen, the sort of questions that have be asked produce complex and often ambiguous answers.
For all this, though, there is a quick response brokers can give when asked ‘What’s my business worth?’ which, every time, gets to the heart of the matter and can take into account all variables. It’s not an easy one for owners though, because it does involve some soul-searching and, sometimes, the facing of harsh truths.
It is: “Be honest with yourself: what would you pay for it?”
No matter when you want to sell, to find out how to get the very best price for your business, call The Business Partnership, today. The agency solicitors and accountants recommend.