Why Business Valuations Are Growing In Popularity
Some business owners mistakenly think there is one Rule of Thumb to value their business. This is never true! For example, if you are a service business, someone may tell you the business is worth one years’ gross – but don’t for one moment think a business with three customers has the same value as one with 30, or even 300 customers. Is a radio station in a major market worth the same multiple of cash flow as one in a small town? Probably not. Are two dental practices in the same city, one with a famous, well-known leader worth the same multiple as a lesser known practice? Probably not.
Very few business owners know how much to expect from a business sale, how much to pay for an opportunity ahead, how to price a capital raise, or how to protect assets by knowing their value, even in these uncertain times.
Why do so many business buyers overpay? Because they don’t have an impartial professional telling them not to overpay! Why do so many business sellers have trouble selling their businesses? Because their advisors tell them to ask for too much! Why do some divorces ruin the business owning partner? And why high death taxes leave the heirs with so little of the estate? All for the same reason – unqualified individuals guessing at true values.