A lot people can still listen to the admonition of our parents,”You have to understand the value of a buck.” From our very first piggy bank to our existing savings and investment strategies, we’ve been confronted with the value of our hard earned bucks.
What happened when you started your own company? Every dollar you spent was extended to make it create as many more as possible. You learned the value of a fantastic item, reliable workers, and loyal customers. Your clients have come to expect quality from you, and they’re ready to pay for it. You keep them by meeting or exceeding their expectations. The same thing is true for your workers. They expect fair wages and comfortable working conditions. In return, they offer you the human capital to run your business smoothly and if they surpass your expectations, you reward them generously. As these finely tuned gears operate smoothly together, your company continuously churns out higher expectations, quality, and value.
Value is what you’ve been striving for all along. Your business has reached peak production and you’re ready to sell. It’s time for all those years of dedication and hard work to pay off. Your business is so rewarding you’re sure of its potential worth. Or are you? Your understanding of your company’s value can greatly influence the sale of your company. Having unrealistic expectations may cause tragedy and financial ruin.
The Damage of an Unrealistic Value
Selling a business differs greatly from selling a house. But, there are similarities. A friend recounted the following story over dinner recently:
Ellen and James loved their dwelling. They spent years customizing it to match their fantasies. In the hand-laid wooden flooring, family theater, and custom bookshelves into the exquisite landscaping, in-ground pool, and lighted grounds they’d done everything to enhance every aesthetic detail.
Then James’ company moved into a more strategic place. To keep up their lifestyle they would need to follow the organization. Ellen and James stayed up nights making calculations. Their main concern was that the value of their dwelling. They counted every penny they had poured into it and came to what they believed was a reasonable price. James negotiated using a realtor and place the price. Though duly warned about the marketplace and appraisal value of the home, the couple felt that their house would sell itself into the ideal family. The ideal family came. They were searching for a home and decided to have a look at an overlooked neighborhood. The”For Sale” sign caught their attention and Ellen and James were overjoyed at the possibility of selling the home so quickly. This new couple loved the house up to its owners. However, the price was beyond their budget. Their offer was 20% lower than the owners’ expectations. Ellen and James roundly denied their offer and showed them the door. Months passed and a couple of stragglers came to examine the house. None of them had the same tastes as Ellen and James. All the possible buyers seen the home in terms of what needed changing, and consequently, each offer has been lower than the first. The owners had refused contact info from the initial buyers.
Now James and Ellen have two mortgages. Moving day came and went. The house is still available below market price. Hindsight is always 20/20.
With an unrealistic value of your company can be quite damaging to your organization, your credibility, and the promotion procedure.
Regretting Your Choices
Your company might be appealing and have wonderful selling points. The beauty of this thing may attract a crowd. However, once that audience hears your unrealistic price that you won’t even have time to explain why you think it’s realistic. Your fantasy price will have driven away your buyers.
Everybody loves a bargain. Irrespective of the vending venue, a bunch draws a crowd. What draws the first crowd? A bargain. Have you ever heard someone yell “Hey Joe, come over here. This man is selling at 10% over value”? No. Why? No one wants to be taken for a ride. However many buyers you collect, they will soon disperse as they discover that your unrealistic price. As if the unrealistic price hasn’t done enough damage, the scoffers will come. Yes, your competition will be right there to take advantage of this circumstance. They’ll tell everyone that you’re just too big for your britches. What makes your company so special you feel you can inquire above market price? If the cost of your company isn’t honest, maybe the cost of your products and services also isn’t fair. Your integrity will come into question. You may say, “Nobody knows the value of my business like I do.” A more accurate statement might be that no one understands the sweat, worry, and toil that you’ve invested in your company. Nobody knows this better than the artist or craftsman. A painting can take weeks to finish, though a machine can replicate it and create copies in minutes. Are you ready to pay a couple million dollars to compensate the artist? Or are you going to take a print for 100 bucks? Value isn’t a set standard but rather is quantified through the eye of the purchaser. The eye of the purchaser is often set pretty low, and with no solidly documented backup you’re certain to end up in a pickle.
How long has your company been in the marketplace? Since items of worth and deals are easily snatched up, why has your company not sold yet? Your unrealistic value is driving your true worth down by prolonged market exposure. When you find a”For Sale” sign on a product week after week, you start to wonder what’s wrong with the product or you automatically decide the owner is asking too much for this. In any event, you’re dissuaded from even stopping to take a look at the merchandise and a buy is out of the question.
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But if an item is available for just a brief period of time, you feel you missed out on a bargain and you don’t intend to let this happen again. Next time something becomes available in that place, you’ll certainly stop to take a look. A shop owner whose product moves fast has a reputation for quality products, bargain prices, or both. Which kind of reputation are you currently garnering having an unrealistic business worth?
Now you’ve chased off the majority of the buyers, what about the people who nevertheless show an interest? They’ve taken your word your company is worthy of the investigation and they start the due diligence procedure. They spend hours depending on your financial reports and documents.
They inevitably come to realize that your company isn’t worth the investment risk they’re prepared to take at this unrealistic price. They’ve wasted money and time in an investigation procedure, which won’t bring a profit, and you may believe you aren’t on their list of favorite individuals. Your lack of supporting information makes you look foolish or worse yet, like a swindler. Suppose an interested buyer was willing to forget all of your mistakes in establishing an unrealistic value on your company. Suppose that this buyer ignored all of the glaring peculiarities being heaped upon your company by your unrealistic expectations, and made you an offer substantially lower than what you’re asking. Can you accept or decline? What is your current vision?
Setting a Clear Vision
It needs to be evident by now that the damages of having an unrealistic value of your company can be staggering. But, knowing the market value of your company is a wonderful bargaining tool and one which you would be wise to obtain.
Negotiating with a sensible value draws your purchaser closer to your side of the bargaining table, and in certain cases, it may completely disarm your purchaser. If he’s reasonable and your worth is true, your purchaser will know that you’ve done your homework and that he’s dealing with a serious seller. The purchaser will unwind and as the tension eases, you can close a deal with both parties satisfied.
How do you pin down this elusive market worth? Where do you find that good documentation so dire to promoting success? It appears apparent that an appraisal is essential, but how can you obtain one? How do you know that it will work in your favor?
You can opt to do it yourself and spend valuable time trying to figure out the value of your organization. You may pull out scads of documents and use rolls of tape onto your adding machine. You can pore over market comparisons and reports. You can buy software and attempt to input the appropriate figures into the correct boxes, only to find you’re in no better shape than a wild guess could have gotten you.
You might decide just how much you need for any reason you’re selling your small business and use this figure as a measuring rod. You might believe a quick quarter is far better than a slow dollar and you may decrease your price as required to get”out from under.” You will definitely be out from under — from under a wonderful profit.
Crystal Clear Vision
You may employ the services of a qualified business intermediary or business agent that specializes in your business. Hiring company intermediary is like inviting a partner to join you in an endeavor. It’s in the agent’s best interest to offer you the most realistic value possible and also to negotiate the best possible deal because a sizable part of his compensation depends upon the deal closing in the greatest possible value. Your new spouse has methods of clarifying reports, figures, and intangible property in ways you could not have imagined.
I am not saying all ecommerce company transactions are broker assisted. Broadly , unless you’ve got a background or experience selling business, selling your own business while at the same time attempting to grow it during the time it is available is a daunting task and shouldn’t be underestimated.
The simple truth that you’ve hired company broker raises the value of your organization. Prospective buyers will understand they’re not the only party in the negotiating table. The existence of a broker elevates the discussion because he’s set the platform for the sale of your company. With a reasonable expectation increases your odds of getting your asking price and in case you’ve got a high yet realistic value with documentation to back this up, it’s many times better. You will see that using a realistic value is half of the negotiating battle.
Regardless of which sort of business or handling style you possess, don’t forget the importance of a realistic business worth. Raise your eyesight rating before buyers converge upon your organization instead of afterwards. Satisfy their gaze head-on with 20/20 vision.
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