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Value is in the Eye of the Beholder

November 3, 2015

By Don Krier

Dear Reader:

There are two top of mind of issues that we hear from our clients over and over:

  • What's the value of my business?
  • How do we keep it confidential?

Let's first address value today. We can talk about confidentiality tomorrow.

You have come to a point where you are ready to sell. What you have is what you have, in other words, you are not going to look to make any changes to the business to improve it at this point to sell it. We hear that comment frequently.

The client says, I know I need to add salespeople, the website needs revamping, the company needs to add new equipment/technology, the new owner can do these things. Clearly, all of these things add value and buyers are ALWAYS looking to find ways to improve the business.

In fact, much of what we do in “selling” the business is highlighting how the business is positioned and what improvements can be made to take the company to the next level. When selling, beauty truly is in the eye of the beholder. Over the past 20+ years representing clients, buyers are looking for opportunity to improve upon what is already there. So no matter how the company is currently positioned, one thing is common: you have to be able to outline the next move. Where does the company go from here?

Years ago, we had a business we were representing that was beating all the averages. The business had above market gross profit margin and EBITDA. The revenue generated per employee was 3x's the industry standard. The company had a diversified customer base, growing sales, broad & expanding product offering. The company was near perfect!

While we successfully sold the business, some of the comments were not what you would have anticipated from buyers. Some of the buyers were actually afraid of the company because it seemed too perfect. One buyer told me he felt the company ran like a Swiss watch, and if he opened up the back and touched anything, it would all spring apart. He did not see anything that he could improve upon, he had no value added that he brought to the table; he was not the high bidder, and the company went to someone else.

Opportunity lies in what can be done with the business in the future. If you can answer that question, you will gain the interest from the best of buyers. Notice the plural in the word “buyer.”

You have to have competition? Don’t try to sell your company with just one buyer. Competition will give you confidence as you talk with multiple buyers. Buyers will become quite aware that they are in competition for the business and that is a wonderful position to be in as it provides the needed leverage to maximize the selling price.

So don't make the mistake of comparing your company with the one down the street or the one in the Wall Street Journal. The value of your company is a one-off situation and, for that matter, is the most important value of any company because it represents the dollars that is most meaningful to you.

Identify the opportunities and sell by creating a competitive environment.

We can help you with both of those and maximize the value in the process.