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Avoid The Business Valuation Trap

How To Let the Market Decide the True Value of Your Business

Let the Market Decide the True Value of Your Business

As a seasoned business advisor with over 100 successful business sales under my belt, I've seen first hand the common trap that many business owners fall into when considering the valuation of their business for sale and exit. While obtaining a provisional valuation from a business broker or accountant can provide a starting point, it's crucial to understand that this figure is not a guarantee of the true market value of your enterprise.

The harsh reality is that your business could sell for much more or much less than what an independent valuation suggests. Ultimately, a business is only worth what a buyer is willing to pay for it. And herein lies the challenge—each potential buyer will approach the acquisition with different motivations, goals, and objectives and your independent valuation is unlikely to meet their approval.

Trade buyers and investor buyers have different agendas and will often propose vastly different deals to acquire your business. Even if you're fortunate enough to receive offers from multiple buyers, each deal will be unique and almost certainly with differing offer prices and terms. This underscores the importance of not solely relying on a binary valuation and engaging multiple buyers.

So, how can business owners navigate this complex landscape to ensure they receive the true and best value for their unique business? The answer lies in doing your ground work and letting the market decide. For profitable businesses with growth potential, the market offers presented by the market are real and can often exceed that of a standard desktop valuation.

First and foremost, it's crucial to engage with qualified acquirers—individuals or entities with the knowledge, experience, and resources to present meaningful and considered offers. Disclosing confidential information to unqualified buyers who lack the means or ability to complete a deal can be detrimental and should be avoided at all costs.

Once you've identified qualified buyers, the next step is to invite them to present written offers after a period of pre-offer conversation and light due diligence. This structured approach allows you, as the seller, to evaluate each offer on its merits and choose the right acquisition partner for your business.

By engaging multiple buyers in a competitive process, you not only gain leverage and control over the deal but also create tension that can drive up the sale value. This competitive dynamic ensures that the true worth of your business is determined by market forces rather than a written valuation alone.

It's important to remember that competitive tension between multiple buyers is what ultimately determines the sale value, not the valuation alone. By letting the market decide through a structured and competitive process, you're far more likely to establish the true value of your business and minimise the risk of disappointing surprises or aborted deals

In conclusion, when it comes to selling your business, don't fall into the valuation trap. Instead, focus on engaging qualified buyers, inviting competitive offers, and letting the market decide the true worth of your enterprise. This approach not only maximises value but also ensures a smooth and successful exit for all business owners who follow this process.

Contact VEXUS to discuss your future business exit.


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