On Playing Offense
“…Whatever Someone Is Willing to Pay”
A phrase we hear pretty frequently is “a business is worth what someone is willing to pay for it.” And of course, this is a true statement. When a business sells… that’s the number.
But the problem with this statement is that it’s reactionary.
Reactionary is bad.
A business valuation enables you to gain an understanding of the most likely value of your business. It is this information that will place you at an advantage when you sit down at the proverbial negotiations table. Consider this – would you start negotiating the price on a house or a car without an understanding of likely value? Probably not. Working with a certified valuation professional arms you with the information and data to both establish value as well as back it up.
One of the things we do when we value a company is to try to ascertain how to value a particular business relative to it’s peers. While we traditionally steer clear of rules of thumb, we’ll indulge for a moment. Let’s assume a Widget Manufacturer should sell for 1x earnings. That’s the average widget manufacturer. Is your company just average? Absolutely not. To get to a more accurate value, we work through a process to dig in and understand why your business is more or less valuable than the market average.
Regardless of method used to value a company, the number one concern for a buyer is their ability to generate profit. Period. The most reliable indicator of this ability is your past performance. But what is often obscured in past performance are items like “non-operational” expenses, one time or unusual expenses, personal expenses run through the business, shareholder perks, etc. We work with you to document those and build them back into the value of your business. This has a direct, significant impact on increasing both actual and perceived value.
Yes, we agree – value is “whatever someone is willing to pay.” But, the idea is to help someone understand why they should pay more. Change the dynamic: play offense, demonstrate value, and increase the value.