Importance of Reasonableness When Selling Your Business
One of the large M&A industry players estimates that
the average business sale closing ratio is less than 10%.
I read an interesting article about one of the challenging aspects of being a business broker. While successful business are often experts, or at least very knowledgeable about their business and the industry in which they operate, this knowledge often gives them a false sense of their expertise in other areas as well. This leads them, after a few conversations with their peers, and the reading of a few articles or books, to reach a hard-coated conclusion about the price and terms they expect to receive for the sale of their business.
And many successful business owners become emotionally attached to their business, and feel its value is the sum of the time they’ve invested in their business and the potential of the business. They really don’t know how the market determines business valuation, but they know what they need to retire – and that’s the number they fix in their mind as what they expect to receive for the sale their business.
The top challenge of a business broker is to help the business owner realize that the value the market places on their business is based upon many factors, and they must not become fixated on a valuation they determined based upon emotions. The following article discusses this situation, as well as seller expectations regarding fees.
The Importance of Reasonableness When Selling Your Business
by Dave Kauppi
“Sometimes business owners are their own worst enemies in the sale of their business. This post explores the importance of reasonableness for a business seller.
We recently completed a survey of a broad cross section of business brokers and merger and acquisition professionals. One of the questions we posed was, “What is the biggest challenge you face in your practice?” We gave them eight choices including lack of financing, sell side deal flow, not enough buyers, etc. We asked our professionals to pick their top three. The top answer was Seller Value Expectations with a 68.9% response rate. The next closest answer was sell side deal flow at 55.3%. Why is this the biggest challenge that our industry faces? To me this translates into a great deal of wasted effort on the part of our buyers, our seller clients, and our profession.
…The business owner’s first reasonableness hurdle is whether he/she recognizes that to reach these corporate buyers is a very difficult and labor intensive process and a firm that specializes in reaching these targeted buyers is the right choice to hire…The seller’s reasonableness will be put to the test as he tries to balance his emotions with the ultimate arbiter of value, the marketplace…”
To read the entire article, click The Importance of Reasonableness When Selling Your Business.
The Summit Acquisitions Group — Business Brokers and M&A Advisors — specializes in the sale, appraisal, and financing of privately owned companies ranging in valuation from $750,000 to $25,000,000. Contact their offices in Atlanta, GA or Charlotte, NC for a free consultation.