The Biz Blog
April 23, 2010 by Kendric Foultz
To help a small business seller understand how buyers value businesses, I like to use this analogy. If you bought a nice car fifteen years ago and took very good care of it, chances are that it looks pretty much how it did when you bought it. It still runs great and does the job that you got it for in the first place. If you take care, it could keep going for decades. Now lets say you bought that car for thirty thousand dollars. What do you think you could get for that car today?
Now look at the business that you started fifteen years ago. Isnt it doing the job today that you built it for in the first place? Youve taken care of it, invested in keeping it current, it does the job it was designed to do; so, why in the mind of the buyer is it worth less than what you think? The first reason is financially driven. Just like selling the used car, there is a market for used businesses. Look up the specifics on any used car and youll find a range that the car will sell for. The same is pretty much the case for a business. The second reason is emotional. The buyer does not have fifteen years of their life invested in your business and doesnt care what it took you to get it to this point. You may have invested more money over that time into this business than it is even worth today. The same is most likely the case with that used car. The car has gotten you down the road literally and the business figuratively.
So if you love that old car and cant sell it for what it is worth to you then why sell it at all? Maybe your life needs have changed and you need a truck instead of a car. Maybe there just isnt room in the garage now that youve gotten a new car. Whatever the reason, it must be compelling enough to cause you to let go. The same is true for the business.
How to Buy, How to Sell, Business Valuation
