Business Value Is In The Eye Of The Beholder

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By Dan Kurth / June 13, 2016 / Uncategorized / 0 Comments

A business, like anything of value, is worth what someone is willing to pay for it the day the owner decides to sell it. Small single owner owned, partner owned or family owned businesses have unique value indicators and value drivers that differentiate them from larger, more formally structured businesses. It is important for the owners of these small companies to be in tune with the value of their businesses on an on-going basis, and in a way that can be explained to a prospective buyer. Although this may sound blasphemous to business valuation professionals, the true small business owner must have simple tools that help him/her run the business, increase the value of the business (to the extent possible) and articulate that value to someone when the time comes to sell.

Value is the foundation of capitalism and capitalism is the lifeblood of business. Developing, defining and marketing the value of a product or service sets in motion a chain of events that drive economies. The perceived value of an item or service is the sum total of what the buyer has decided to trade or give up in order to get a particular product or service. On the sellers side, the asking or negotiated price is the sum total that it took, or will take to make and or delivery what is being sold. In terms of a business sale, the sum total of years of hard work, dedication, commitment and financial investment is taken into consideration when determining a selling price. To the buyer, the past is irrelevant other than the value of a name brand, customer loyalty and other items of good will. The future holds the real value in the eyes of the buyer. What can they do with the business and how much of the past will go away and need to be replaced the day they buy the business? A business owner who has been able to drive a business to a specific value with specific control tools can relate those things to the buyer in order to sell the buyer on their asking price. The buyer then tries to see the future and predict how, or if they will be able to recoup their investment.

The Legacy Alpha Program defines a benchmark business value and creates the simple tools for the business owner to use to drive the value of the business to a specific level at a specific point in time, like a retirement date. These tools are best used in a 3-5 year period before the business owner wants to sell. This allows enough time to drive the business value and create a story with examples of how the business value drivers actually work. The buyer gets a clear picture of how the business was run successfully, and more importantly, how the value of the business is fair and recoverable if he/she decides to buy it. For a comprehensive business analysis that includes a benchmark business value, contact Dan Kurth at Human Performance, LLC (612) 213-2888 or dankurth@legacyalpha.com

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