Business Valuation Mistakes

Posted by on May 24, 2013

businessvaluationAll business owners are just as curious as the next business owner as to what their business is actually worth. Business valuations are often carried out by the business owner which is one of the biggest mistakes an owner can make.

Business owners will almost always over value their business, thinking it is worth far more than what is is in reality because they are emotionally attached.

Realistic Business Valuations

As a business owner, you will do everything you can to value your business at the best possible price. Usually by high lighting the good points and skimming over the bad points. In theory this sounds like the right thing to do, however this will almost certainly end up with your business sitting on the business for sale market with very little interest, and leave you scratching your head.

Market Trends

Apart from the obvious factors that determine a businesses value, one of the most important points business owners usually forget to consider into the equation are the current market trends within your industry.

Are there other businesses for sale that are from the same industry as your business? Are they having a good response from interested buyers? How are they priced? These are just a few importants questions to ask yourself prior to advertising your business for sale.

This is a great question because it will give you some indication as to whether or not buyers are showing interest in your particular industry.

If the answers are in your favour, then you will be in the box seat from a sellers point of view, but if they are not in your favour, then the buyers will hold all of the cards and you will need to make your business stand out from the rest to help generate some interest.

Making sure you have a realistic business valuation price is the first step.

Business Valuation Company

Your accountant should be able to give you a good indication of your businesses value, but I wouldn’t put all of my faith into your accountant. If you have a really good rapport with your accountant, he might feel obligated to tell you your business valuation is more than what it really is.

This isn’t the always the case, but it does happen. Hiring the services of a third party to give your business a true valuation is the most accurate and honest method. Sure, it will cost you from $500 to $1500, but paying this fee may save you thousand in the long run.

It also justifies to potential buyers how you came up with your asking price. This will display your honesty with the buyer, which will give the buyer trust in you. If your potential buyer trusts you, then you are one step closer to selling your business.

There are many professional business valuation companies available, so shop around and try and get the best price for the best services. Your local bank or accountant will be able to point you in the right direction.

At the end of the day, a business is only worth what a buyer is prepared to pay for it. It is your job to polish up your business and set a realistic asking price that you can justify to a buyer.

Author: Andy White

Andy White holds a Masters of Business Management and after a career as an Officer in the Australian Army, worked as a Business Consultant and now operates his own successful Real Estate business on the Queensland coast.

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