{"id":561369,"date":"2012-06-27T03:47:30","date_gmt":"2012-06-27T07:47:30","guid":{"rendered":"https:\/\/vrbbd.wpengine.com\/vrbbgreenbay\/whats-your-business-really-worth\/"},"modified":"2022-01-31T12:44:38","modified_gmt":"2022-01-31T17:44:38","slug":"whats-your-business-really-worth","status":"publish","type":"post","link":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/whats-your-business-really-worth\/","title":{"rendered":"What&#8217;s Your Business REALLY Worth?"},"content":{"rendered":"<div>\n<p>A recent article in INC magazine titled\u201dStreet Smarts,\u201d by Norm Brodsky (his column is worth the price of the magazine) addressed the subject of the title above.\u00a0 However, in the very first paragraph of the article, Mr. Brodsky stated, \u201cUnfortunately, most of them [business owners] have grossly inflated notions of what their companies are worth.\u201d Mr. Brodsky is not one to mince words.\u00a0 Some of his examples were: \u201cOne company had lost money on sales of about $60 million, and yet its owners thought it was worth between $50 million and $100 million \u2026 Another company had a net profit of less than $335,000 on sales of about $6.5 million \u2013 and still the owners somehow came to believe it was worth between $100 million and $200 million.\u201d<\/p>\n<p>Mr. Brodsky feels that the reason for this is \u201c\u2026 our egos can get us in trouble when it comes to putting a dollar value on something we\u2019ve created.\u00a0 We generally take the highest valuation we\u2019ve heard for a company somewhat like ours \u2013 and multiply it.\u201d<\/p>\n<p>He goes on to point out that prospective acquirers are more concerned about profits, especially Free Cash Flow, than sales.\u00a0 Too many company owners use some rule of thumb based on sales.\u00a0 He also points out that company owners tend to use a comparison of a similar business across town that sold for some multiple of sales and then apply it to their company.\u00a0 There are so many variables of how sales (and subsequently earnings) are generated that no two companies are ever alike.<\/p>\n<p>Business owners tend to forget the negatives of their business; e.g., sales from just a few customers, lack of contracts with customers and suppliers, lack of product diversity, out-dated equipment, etc.\u00a0 Also, as Mr. Brodsky points out, \u201cBefore you try to sell, make sure you know what buyers want.\u201d<\/p>\n<p>Turning to another expert voice, here is some good advice from Allen Hahn, Senior Vice President of Valuation Research Corporation: \u201cThe level of EBIT or EBITDA used for negotiating a purchase price is the \u2018normalized\u2019 level that will be available to the new owners from the assets acquired.\u00a0 Often times this requires elimination of unusual, inappropriate or non-recurring expenses.\u00a0 Buyers will typically consider a company\u2019s last twelve months of financial performance.\u00a0 However, projected results may be more relevant if a structural change has recently occurred in the business (loss of a key customer, acquisition, etc.) that renders historical results less meaningful.\u201d<\/p>\n<p>What does all of this mean?\u00a0 It means that owners should disregard rules of thumb based on what the company across town sold for; it means that owners should not use a multiple based on what the business did four or five years ago, or what they think the business will do next year.<\/p>\n<p>Business owners should first put their egos aside, then look long and hard at the company\u2019s cash flow, realistically assess the negatives (and positives) of their business and \u201cmake sure you know what buyers want.\u201d<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>A recent article in INC magazine titled\u201dStreet Smarts,\u201d by Norm Brodsky (his column is worth the price of the magazine) addressed the subject of the title above.\u00a0 However, in the very first paragraph of the article, Mr. Brodsky stated, \u201cUnfortunately, most of them [business owners] have grossly inflated notions of what their companies are worth.\u201d [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[],"class_list":["post-561369","post","type-post","status-publish","format-standard","hentry","category-selling-a-business"],"blocksy_meta":[],"_links":{"self":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts\/561369","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/comments?post=561369"}],"version-history":[{"count":0,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts\/561369\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/media?parent=561369"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/categories?post=561369"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/tags?post=561369"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}