Around the world there are millions of businesses for sale at any one time. However, many of these businesses remain unsold. Some businesses though sell easily and for a crazy multiples of profits! Why is this?
When it comes to valuing a business for sale there are various ways to calculate this. The problem with most company sales in the small and medium business market, is that sellers are not sufficiently educated to understand exactly what the key drivers of value are in a business and why these drive higher multiples when a business is assessed for purchase.
There are many myths believed by businesses owners, one example being that they have given blood sweat and tears to running the business for many years, therefore it must be worth a million pounds/dollars. Wrong!
Valuing a business for sale involves many calculations, a bit of science and maths, and a whole bunch of nuances. No two businesses are the same. So what makes two similar size businesses so different? Consider this; two businesses each have a revenue of £2m, one has net profits of 25% and the other just 4%. One has a high staff turnover and poor customer reviews, while the other has an amazing culture and staff retention is high, and their customer reviews are all five stars. One has customers who pay late all the time, causing cash flow problems, while the other takes money up front and has no cash issues. These are just a few examples of what makes one business attractive and one which is going to struggle to sell. The Multiple Myth sets out to help both buyers and sellers to understand what the key drivers are in determining the correct value of the business. And in the case of the seller, to put these in place to position their business for sale for a high value. And for a buyer, to know what to look for, and to avoid which will help them position their offers correctly.
