We felt this was a great business, despite having made a loss in 3 of the previous 4 years. A good fourth year helped to highlight the underlying value of its profile and customer base, more than justifying the price achieved of just under £50k plus many thousands of pounds for stock. Surprisingly to many, owners who underestimate the value of their business arise almost as often as the opposite, asking:
“What is there to sell?”
Sellers and buyers alike rightly focus first on profit, turnover and net assets, but the underlying value of a business is more complex. Famously, social media and other internet companies sell for vast fortunes, even when they have never made a profit. Surely the same doesn’t apply to “normal” businesses? In a sense, yes – most of those internet businesses did have many millions of users, with a big prize awaiting those who could work out how to ‘monetise’ their loyalty. Indeed, access to markets is often the treasure chest of value which owners don’t appreciate they have.
When they do, many realise that the access route is them alone and/or a few key executives. This is why planning your exit a long way in advance can make a dramatic difference to the Sellability Score of your business. It’s also why internet-based retailers – for whom the customer’s ‘relationship’ is primarily with a website – can be turned around relatively quickly, given the right know-how.