As a former business broker I understand the heartache of both the business owner as well as the business broker when a business sale falls through, especially when the reason is related to price.
Addressing this issue seemed relevant after reading the Pepperdine Private Capital Markets Project, 2015 Capital Markets Report, by Dr. Craig R. Everett, bschool.pepperdine.edu/privatecapital. What I learned is that 35% of businesses do not close because of a valuation gap in pricing the business. According to the Pepperdine Survey, this gap generally ranges from 21%-30%.
It is my opinion that this valuation gap occurs because of how the business owner and the business broker arrive at the listing price. Based on my experience a couple different pricing scenarios are….
- The business owner can have their own opinion of “value” since they are emotionally invested in the business and involved in the day-to-day operations.
- The business broker generally price a business based on multiples of revenue, Sellers Discretionary Earnings or market comparables.
Neither of these scenarios will accurately reflect the true value of the business; therefore putting the deal at risk when it comes down to closing.
As an appraiser and former business broker I strongly recommend getting a Certified Business Appraisal before listing the business for sale. This will accomplish a few major things:
- You will price the business based on relevant facts specific to that business, not emotions or comps that do not accurately reflect the actual business being put up for sale; therefore,
- You increase the probability of putting a deal together that will be acceptable to the bank; therefore,
- You increase the probably of closing the deal which makes EVERY BODY HAPPY!
If you need to know what your business is worth don’t hesitate to call the experts at Analytic Business Appraisers , 480-857-7449. “We Value Your Business”