What is My Business Worth ?
What Is my Business Worth ? It is a Question I have asked as a Business Owner, As a Business Buyer I have asked myself How much is this business worth. As a Business Broker I have had a Business Owner ask me my opinion regarding how much their business is worth . And as a Business Broker I have had a potential Business Buyer ask me what a business may be worth.
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What is my Business worth ? It depends, Depends on what? The list can be long.
Type of Business, Industry, customer base, difficulty of business transition, How the business is currently being run, how the business can be run, assets, does the business enjoy recurring revenue, what sort of cash flow is business generating are a few determinant factors.
Cash Flow may be the most important price determinant of this list. How much is the business making? How much is the business making the owner? (Owner Benefit or Adjusted Cash Flow- this is different than Net Income and or Profit that may show up on companys P&L or taxes). What multiple of cash flow will this business sell for? In our recent market conditions the lions share of Main Street type business are sold at multiples of cash flow in the 1.5- 3.5 time adjusted cash flow. Some do sell for more some for less.
Often a Business Owners decision to sell is based on- what is my business worth . What can one expect to “Net” from the sale of the business OR is continuing to run the business a better fit.
Business value can vary from buyer to buyer and the business value to the Seller can be different than the market value.
The market value of a business is ultimately defined by what a willing capable buyer is willing to pay for a business. IF 3 potential buyers are willing to offer $400,000 for a specific business and that business owner wants to sell for $600,000 is the Business Seller wrong for wanting to sell for $600k?
A Business Seller says – this is what my business is worth. A Business Buyer says -no it is not, but this is what the value is to me- who is right? they both may be right or they may both be wrong. But if you truly have 2 interested parties, it is not a matter or right or wrong rather a question of can you find some common ground to further discussion.
The value of a business to a “Strategic Buyer” which could be a competitor, supplier or related business, could be different than the value to a “Financial Buyer”, or an individual looking to acquire a business for existing cash flow and possibly increase the cash flow /value of the business.
When looking at Business Worth or Business Value what you are ultimately looking at is what is the “Most Probable Selling Price” – which is different than an Asking price or Listing Price. A Seller can ask whatever he/she chooses, but will there be a buyer at that price. “This is what I want for my business” or This is what I need for my business” also can be different than a Selling Price.
I believe an effective means to try to get to the Most Probable Selling price of a business is an approach that can be both simple and difficult.
Can the Seller of a business attempt to take on the perspective of a Business Buyer ? I think the likelihood of setting Selling/Buying terms, goals, values that are achievable are greatly increased. Can the Seller look at his/her business through the eyes of a buyer?
Seller may say- ” I want my full asking price all up front”
Buyer may say – ” Doesn’t’ the Seller believe in his business and show it by being willing to hold a note”.
Seller says ” I want 5 times my cash flow because I have a great business”
Buyer says- “most other businesses like yours are sold at 2 times cash flow”
Seller says- “This is what I want for my business”, So the question to the Seller would be- “Would you as a business buyer pay that for your business? – You are knowledgeable and experienced in your field, Would you pay all that money at closing or would you as a business buyer pursue some Seller financing or “holdback” , you are looking for a good value, would you pay over double what other like business are being sold for?
Again- “What is my Business Worth”- It is what a qualified , capable party is willing to pay, but looking at Selling your business through the eyes of one trying to buy a business can provide an invaluable perspective.
Scott Messinger is a Business Broker as well as a current and former business owners. Business experience over the last 30 years includes personally buying 9 businesses, starting, growing, running and selling a successful business, and representing buyers and sellers as a business broker. For further Info call (239) 770-2421 or Scott@gwbusinessadvisors.com Looking for a Florida Business For Sale?
