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The Importance of Realistic Valuation Expectations When Selling a Company

By Generational Equity

11/12/2018

One of the toughest challenges you will face if you market your company without professional guidance is that, most likely, you will have no idea what your company is worth. This issue becomes very complicated at two ends of the spectrum:

  • You may have valuation expectations that are far too low
  • You may have valuation expectations that are far too high

In the first scenario, you undervalue your business and take the first offer that comes your way. Then, to compound matters, since you have no experience structuring deals, you will probably accept a deal structure that favors the buyer over your needs. You get hit with a double whammy!

With the second situation, since your value expectations are far above what the market will pay, you walk away from what may be some really good deals. To make matters worse, your pride and ego may get wounded by what you consider “low ball” offers and you simply stop negotiating with someone who might be a prime buyer for your business.

Under either scenario you lose!

The Solution to Unrealistic Valuation Expectations? Hire an Experienced M&A Advisor

Now, many of you reading this subtitle are now muttering, “Why should I hire someone to help me sell my business? I am an experienced, skilled business owner with lots of years negotiating contracts with vendors and clients. Why do I need any help with my business sale?”

The reality is that even though you are highly skilled in running and successfully operating a business, you most likely have no experience in selling a company. Most business owners only do it once in their lifetime. That is not how you want to learn how to close a deal for your company, given that you’ll most likely fall into one of the two situations outlined above.

That is part of the reason that Generational Equity’s exit planning process works so effectively.  The first step we undertake is a full and thorough valuation of our client’s business. From this comes our initial estimate of value (the business enterprise value – BEV). This forms the baseline of what you can expect the market will bear for your business.  

However, keep in mind that our BEV is really an economic value based purely on financial modeling. Offers may come in above or below based on a variety of factors including your company’s hidden, non-balance sheet, intangible assets (those enhance the BEV).

Conversely, risks that buyers see in your business model (owner dependence, customer concentration, weak financial reporting, etc.) are items which can negatively impact your BEV.

Ultimately, the market will tell you what your company is worth; but having our baseline value is a real plus because you have a range that you can expect the buyers to be in when they make offers.

Growing The Value of Your Company

One of the real benefits of the Generational Equity business valuation process is that we also provide you with specific ideas on how you can enhance your company’s value and salability. Our relationship with our clients is long-term. In fact, we provide two updates of value over a 5-year period at no additional cost.  

Our goal is to help every client maximize his/her exit point in terms of value obtained from the buyer. Since few companies are “buyer ready” from the moment we start our process, our strategies are designed to help our clients get on the path to improving their valuation. 

These are ideas that you won’t come up with if you try to market your company on your own (or even if you hire your cousin Larry who has a real estate license and recently retired). 

Buyers hate risk, and the steps you can take prior to going to market (or even while actively in the market) to reduce perceived risk in your offer will only help you obtain an optimal deal.

But don’t just take my word for it, listen to what a few of our clients say about the benefits of hiring Generational Equity:

The common thread you see in these unique stories is that the Generational Equity exit journey worked and having our experience on their side was a real benefit. Ultimately, we helped each owner achieve an optimal deal.

Certainly you can do it without us. Companies sell all the time. But do you really want to risk your financial legacy while learning how to sell a company on your own? I know I wouldn’t.

To learn more about our company valuation and deal-making services and how they can benefit you and your family, use the following links:

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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