Business Valuation: The First Step to Selling Your Business

As a business broker I encounter business owners contemplating the sale of their business on a daily basis.  One of the most puzzling questions for these exiting owners is, “Where do I start?”

While there are a thousand things to consider when selling your business, the first and most important question to answer is, “what do I have to sell and what is it worth?”  The best way to answer this question is with a business valuation.

Think about it, how can you decide if the best move for you is to sell the business if you don’t have a firm understanding of what you’re selling and how much you can reasonably expect to gain from it?

How will you plan?  Will you have enough money to retire comfortably?  Will you maximize your purchase price or will you leave money on the table?  Is a third party sale really your best option?

Having a business valuation performed prior to making the decision to sell will provide you with both piece of mind and a baseline for evaluating potential offers.  It will allow you to formulate what your retirement looks like prior to actually being retired.  Isn’t this critical information to have BEFORE you lock yourself into a listing agreement with a business broker?

I think so.  That’s why our business exit process is divided into two completely separate stages, the valuation stage and the sales stage.  At the completion of the business valuation, you do not have to move forward with a sale.  A sale might not be your best option to accomplish your goals.  But at least you will have the information you need to make an educated decision.

This is not the normal business brokerage process.  Many business brokers will list your business based on what you would “like” to collect from a sale.  This is a complete waste of time.  It forces the market to price your business.  And believe me, the market will tell you the answer whether you are ready to hear it or not.  You’ll then tell the buyer that they’re crazy and that their offer is insulting.  That is, until 5 or 6 buyers tell you the same thing.  Only then may you start to listen.

You could have avoided the time and agony of dealing with buyers if you had spent the time and money up front to have a valuation performed.  If you had hired an appraiser FIRST, you would be confident in your decision to sell, you would be confident in your ability to evaluate offers and you would not be turning away potential buyers because your expectations are out of line.

Now consider this, what if you had ordered your valuation years in advance of considering a sale?  You could have learned what was really creating value in your business and focused your time and energy on those tasks rather than the auxiliary ones.  Imagine how lucrative your exit would be then?

Don’t wait until the last minute.  Don’t approach the sale of your business blind.  Have a tight grasp on what you’re selling and a realistic expectation of what you can achieve from a third party sale.  It will simplify the sales process and provide you the piece of mind you are seeking in your retirement

Start with a business valuation.  It’s the first step to preparing your business for sale.