This is a scenario we see often. When an owner has been in business a long time and in fact, was the person who started the business 30 or 40 years ago, they make the mistake of wrong perceptions. What do we mean by that? It means their perception of what their company may be worth is limited to their small world. Nearly 85% of business owners have no idea what their company is worth.
Let me give you an example. Let’s say their operation is $4 million a year in revenue and the last couple years have been off a bit. Further, they are considering selling but they are thinking that they are too large for local competitors but, too small for larger entities to be interested. In addition, their emotions tend to be driving the bus, because it is a very tough decision for the original owner to give up the only that thing that he or she has known their whole life. Their conclusion: this business can’t be sold. Or, if I do sell it I am going to lose much of what I put in it. That is a mistake in their thinking.
The reason they are wrong is mainly due to the fact that they probably have never worked “outside” of their little world. In short, their perspective is limited. They will not know how buyers, acquirers and much larger companies think. Nearly 75-80% of privately held businesses sold last year to public companies were small—under $25 – $30 million.
If your company is in a niche that is unique, has solid sales year after year, has had steady growth, or a loyal customer base, your company will attract buyers. The buyers generally have a different perspective than the owner. Buyers buy for many different reasons, they may desire the increased customer base, or another regional location, a desire to diversify their product line, or more control over a channel. The buyers’ desires are generally far afield from the seller’s thinking. Obviously, the seller is thinks like a seller and the buyer is thinking like a buyer. Experienced intermediaries see this day in and day out, the huge discrepancy between the two.
As a result the seller may have way more value than they realize to a potential buyer. This is where the intermediary can help ease the seller’s mind. There are buyers out there everywhere ready to snatch up what the seller has to offer. Of course, the opposite danger must be avoided as well. That is, the seller believes that he sitting on a gold mine and has an inflated value in mind. This occurs from time to time, as well for the same reason I noted earlier, that most owners do not know their company’s real value. Both of these mistakes point to the need for objectivity. And that is one of the most important factors that a business intermediary brings to the table.
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