I meet with a lot of business owners that say they are preparing to sell. Most of these business owners have an inflated view of the value of their business. This is normal. There’s a lot of pride (and ego) that comes with starting, running and growing your own business. It has provided for the owner, their family and employees for years – so of course it must have value. When meeting with buyers, these business owners may be shocked by the offers they receive.
Are YOU the Reason Why Your Business is Undervalued?
There are many factors to consider when preparing your business for sale, but the “people” part is top on the list. As an entrepreneurial business owner, you probably have your fingers in many of the daily activities. This is not appealing to a potential buyer.
Before you talk to potential buyers, elevate yourself to a strategic role. The more you can demonstrate that you work “ON” the business rather than “IN” the business, the more attractive your company is to a potential investor. If an owner is tied to the day-to-day operation of the business, it means a buyer will also have to be tied to it, spend significant money to hire someone for this role, or both.
It’s simple math. The more a buyer must invest in people to replace the owner, the less cash flow there is to justify a higher purchase price.
I ask my clients to read the book The E-Myth Revisited by Michael Gerber to help them understand this point (among others). It’s a discussion of the myths surrounding running your own business and how commonplace assumptions can get in your way. Most entrepreneur-run companies depend heavily on the owner. I work with these companies on their People issues – getting the right “who” in each seat so the day-to-day operations are no longer reliant on the owner.
In addition, I help them improve (or in many cases, create) personal work/life balance and business value by implementing a simple set of tools that allow them to build a healthy, accountable organization – while freeing up their time.