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What Is Your Business Really Worth? |  April 10, 2023 (0 comments)

Bill Boyajian_9594-Final-4x5

Carlsbad, CA--With retirement on the mind of many business owners today, most want to know what their business is worth. Unfortunately, many feel the value is more than what is reasonable.

A true test is to understand what your business is worth to a prospective buyer.  Frankly, that’s the only thing that really matters. Another test would be to ask yourself what you would be willing to pay for your business in order to keep it or take it over. This may be an even better test to get to a realistic figure.

Regardless of what you think your business is worth, there are professional valuation experts who are trained to provide very accurate numbers based on your company’s past and present performance.  They don’t do a valuation on the back of a napkin. It is a rigorous process based on a lot of training and experience.

The true value is what the business is worth today, not what it could potentially be worth in the future. And if a business has dropped revenue and profit in recent years due to continued underperformance, chances are its value to a prospective buyer has dropped, too.

One owner wanted to sell his business to a long-time employee for $500,000.  That’s what he wanted and what he felt his business was worth.  His employee had her CPA evaluate the business and it came to $385,000.  The owner was upset at this and ultimately conducted a Retirement Sale which netted him the $500,000 he was hoping for.  This required a lot more work on his part, but he felt it was worth it.  Ultimately, his employee took over the location and purchased the furniture, fixtures, and equipment for a modest amount, and began to put her taste and vision into her new business.

Every disagreement about value doesn’t end as pleasantly.  Often, the best way to exit a jewelry store is to allow it to be taken over by a family member or long-time employee.  They usually know the business well and are best equipped to carry it on.  But as in the example above, it isn’t always easy because when you get into the details of a transaction and money is involved, issues can emerge.

Occasionally outside help is needed to sort through these details and encourage a positive outcome for the retiree and the new owner.  Keeping communication open, clear, and direct is always needed, and maintaining good relationships at each step in the process is essential.  If you need help in business transition, I encourage you to seek wise counsel.

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