Reports show there are more than 32 million small and medium businesses currently operating across the United States. They make up more than 99 percent of our business sector. At the same time, they contribute a great deal to the nation’s economy from several perspectives. Consumer spending and employment opportunities are a couple of the most significant. This article’s focus is about the real value of your business versus an idealistic one.
Many people dream of starting a business but few actually bring that vision to life. As a business owner, you’ve certainly accomplished more than most. You deserve a great deal of recognition for all your hard work and achievements. As is the case with the majority of entrepreneurs, though, the time will inevitably come when you’re ready to pass along your company to someone else.
A Brief Look at Business Sales in America
Some experts have said that all businesses are technically for sale providing the right price and circumstances are on the table. Reports vary when it comes to the number of companies entrepreneurs place on the market each year, but it has been growing for quite some time now.
Of course, the more important figure might be the number of companies that end up selling once they’re on the market. There’s a significant gap between the two with experts saying only 20 percent or so of businesses for sale are actually purchased by new buyers.
Though businesses fail to attract buyers for a range of reasons, one stands out as the most common. In many cases, entrepreneurs simply price their companies too high. They’re focusing on an idealistic value rather than a realistic one.
That, alone, drives away countless potential buyers. Business brokers in Austin can help you understand the true value of your company versus one you may be basing on intangible factors. In the meantime, let’s take a closer look at the problem and why working with a more realistic figure is so important.
Looking at the Unrealistic Side of the Equation
Numerous measures go into building a business from the ground up. Obviously, you spent some time trying to find a market niche that dovetailed with your knowledge, talent, and passion. From there, you had to consider the products or services you’d be offering customers. Then, you had to develop and hone them to meet the public’s demands. No doubt, you had to create a well-thought-out business plan to cover all those bases as well.
Figuring out where to build your business also came into play. Marketing, funding, and all the little legal details entered the mix, too. Those are only the bare basics. They only take a few minutes to read about, but actually putting them into practice can take months or years. On top of all that, you can’t overlook all the time and effort you put into running and further developing your company over the years.
All that is surely worth quite a bit, right? To you, it’s priceless. There’s no way to put a concrete value on your dedication and hard work. Still, you try to come up with a figure that might come close. Factoring in all the equipment, intellectual property, established customers, and other assets you’ve amassed further drives up your company’s perceived value.
All that often adds up to a price potential buyers wouldn’t even consider. As such, your business lingers on the market for years without prospects showing any interest. Those who do consider purchasing it give you lowball offers that don’t come close to what you feel it’s worth. This is why you should know the real value of your business versus an idealistic one.
From a Different Angle
On the other hand, coming up with an abstract value for your business might take matters in the opposite direction. Maybe you’ve been losing money for a while and don’t see things taking a turn in the right direction any time soon. If so, you may simply want to cut your losses and get out from under the business before things take a turn for the worse.
That might lead you to choose a price that’s well below the actual value of your business. It’ll be sure to sell then, right? While that might be true, you could also be selling yourself short in more ways than one. This scenario is far less common than the previous one, but it certainly happens to more business owners than you might imagine.
Determining the True Value of Your Business
All that brings us to the concept of determining a realistic value for your business. Several methods can be used for business valuation. Each one takes a range of factors into consideration.
One of the simplest approaches is to look at how much similar businesses have recently sold for. That’ll give you a general idea of how much you may be able to get out of your company. Though this is the easiest valuation method, it’s not necessarily the most favorable for business owners.
Another option would be calculating your company’s book value. That entails adding up the value of your assets as well as your liabilities. Then, you would subtract the latter from the former to come up with a feasible sale price. If your liabilities add up to more than your assets are worth, though, you could run into serious problems with this method. This methodology is also not used often for businesses that will remain as ‘going concerns’, as this does not value most businesses in a correct fashion.
Other solutions consider your company’s future cash flow. They may use past sales trends or other figures to predict how much money your business might bring in during the years to come and discount those future cash flows back to the present. In turn, that would determine a reasonable price for your company. Alternatively, valuation experts may also calculate how much your assets would be worth if they were simply liquidated.
Keep in mind, not all of those options are right for all businesses. It’s best to work with business valuation experts like us to determine which one best suits your needs and circumstances. We’ll do a deep dive into your business, comparing variables and valuation strategies as they apply to you. All the while, we’ll keep your best interests at heart. This is how we get to the real value of your business versus an idealistic one.
Why Is a Realistic Value Important for Business Owners?
With all that in mind, let’s discuss why knowing the true value of your company and using that figure when placing it on the market are essential. When you create an idealistic value that’s not based on concrete evidence, you’re likely to be disappointed in the end. Your business probably won’t sell. If it does, it’ll be for far less than you’d hoped.
On the other hand, using a realistic value sets you up for success. You’ll have a valid and reasonable image of how much your business is actually worth, so you won’t sell yourself short or price yourself out of a sale. This could also give you a chance to improve upon various aspects of your business before selling to bolster its market value.
Let Us Help You Make the Most of Your Business Sale
Knowing the true value of your company is crucial. Finding out this figure long before you decide to sell is also essential. Valuation needs to be an ongoing process that allows you to heighten your company’s worth and set yourself up for success when the time comes to place it on the market.
At CGK Business Sales, we’re experts in our industry. We’ll help you understand the true value of your company and find the right buyer to meet your expectations. Contact us and let us put our experience to work for you. We will get to the real value of your business versus an idealistic one.