Subtle Factors that Dramatically Impact 
the Value of a Business

By: Theodore P. Burbank FCBI 

Examples are legion where long established businesses simply close their doors. Many others are sold under duress because of ill health, divorce, partner disputes, owner bum out, business slow down and death. A business sold under adverse or distress conditions does not command much value. Many are sold for mere liquidation value. Most businesses, like old soldiers, just fade or are given away. 

Conversely, we all have heard stories of companies selling for fantastic prices and often reportedly for all cash! The million dollar question, (perhaps literally) is ‘Why?’ After much thought, and almost twenty years of experience gained in selling several hundred companies, the answer appears quite simple yet, beneath the surface, complex. 

The simple answer, in a word, is preparation. As with most projects, the quality of the preparation in large measure determines the quality of the results. Whet preparation Involves is a combination of dynamic and subtle factors, many of which are so obvious they very often are overlooked. 

The Winning Strategy

 Decide that you will sell someday
 Prepare yourself for the sale
 Identify your ideal successor
 Realize buyers primary motivations are not financial
 Avoid the “I’ll do-it-myself’ urge and obtain professional assistance
 Understand the unique rules involved in small and mid-size company valuations and sales
 Understand the factors, financial and non-financial, that drive the value of your company
 Position your company property 

To Sell or Not to Sell 

Perhaps the most difficult decision, as a business owner, you ever have to make may be your decision to sell. Unfortunately, many business owners agonize over the many variables involved in selling without ever making the decision to sell.  Others will wait too long to sell (businesses are seldom sold too soon), and a significant number feel they cannot afford to sell their only source, of income. 

Nothing stays the same. Over time a business changes and so does the owner. Eventually, demands and needs of the business grow to conflict with an owners perspective and skills. Something has to give. Will it be the owner’s personal life and health, or will it be the business that suffers? Perhaps both?

 Only two end game options exist:
 the business is sold to family, employees or outsiders
 the business is closed. 

By failing to prepare for eventual sale, the business owner allows the end game to be determined by external forces. The result—usually an attempt at sale under conditions of personal or business distress.

Poor health, divorce, slumping sales, creditor demands, poor employee relations, lack of operating or expansion capital very often are the symptoms of an owner who could have sold, but failed to heed “early warning signals.” Indecision or lack of proper planning and preparation can prove to be very costly. Costly not only to you, the business owner, but also to your family, employees, vendors and customers.

To avoid this situation a business owner should first make the decision that the business will be sold, someday. Then, begin preparations and, when appropriate, set the process in motion. Once the decision has been made, professional help can be obtained to address the multiple variables, and implement a plan.

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