The seller always gets ripped off. As a business owner myself, I understand that this is a big pill to swallow, however it’s true as true can be. Think about all the hours spent in your kitchen thinking about the business. How many times were you late for dinner or missed dinner altogether. Time spent without your kids and family, years without a vacation or even a day off. Worries about payroll, taxes, rent, decisions, decisions, decisions… How much is all that worth? Whatever you think that you want for your business it’s too low!!! The challenge is for you is to realize that the buyer isn’t buying that…He is only buying the income.
Just like you don’t see all that went into the machinery, and employees and regulation that it took to produce that can of peas on the supermarket shelf. All you are buying is the can of peas that goes well with Ramon noodles. Well a buyer for a business doesn’t see, or care to see, what it took to get you where you are now, they only are buying that which you are now. And incidentally…you would do the same thing.
A buyer is looking for a business that pays for itself, pays its debt service, and pays the buyer a living wage that is determined by the buyer. That’s all. More often then not the structure of the deal is more important than the price…in fact that is always the case.
First let’s talk about value of a business from an accountant’s point of view. The accountant needs to have numbers to look at. Most small business owners are notorious for keeping poor records or none at all. Good books do add value. To the accountant type, a business is worth what a bank will lend on it. This is common when dealing with Real Estate. Believe me, if the bank wouldn’t lend the money for your house, it wouldn’t be worth much more then the value of the lumber it took to build it. Of course people bid up the price due to location and condition but ultimately it’s the lender that drives up the price. Well, a business is different. The buyer is not looking for a place to live but for an income to afford that big house. The challenge is that the banks for the most part won’t lend on businesses. So…we are back to stage one where the buyer is paying for an income.
This is what a buyer will do:
- They will decide how much money they need to get out of the business to live in a style that fits them.
- Then they will find a business that they think they can grow. .
- Then they see how much money they have to put down and have reserves for working capital
- Then they see if they can get a loan for the rest of the purchase price either from a bank, SBA or the seller.
- Then they make the numbers work so the business: pays for itself, pays its debt service, and pays the buyer a living wage that is determined by the buyer
Nowhere in this process is the seller’s hard work taken into consideration. The buyer is using his or her life savings and borrowing to the hilt to build a future for their families. Sorry but A BUSINESS IS WORTH WHAT IT’S WORTH TO THE BUYER.
Father, Husband, Salesman, Businessman, Speaker, Trainer and lover of most breakfast cereals. Contact Info: Article Source:http://www.articlesbase.com/entrepreneurship-articles/a-business-is-worth-what-its-worth-to-the-buyer-1561463.html
Daniel Jourdan
Marietta, GA 30062
dan@nbb-web.com
