It’s really simple.

Like anything anyone wants to sell, to maximize the value you need to stage it.

So with a business, you first need to understand value is subjective. At any given time, there are a number of “values'' that are accurate, yet different, depending upon who is ascribing the value and for what purpose.

For example, there is Owner Value World. Then there is Buyer Value World. These are seldom close! A quick calculation of Earnings times some “Multiple” (where the “Multiple” reflects the risk the Earnings are sustainable and “growing”) is the base for valuation. You can add real estate, maybe inventory, patents, or other tangible assets, but Earnings times a Multiple is the base for valuation.

An Owner has utmost confidence their “Earnings” will continue as in prior years. A Buyer does not. They perceive potential risks due to you, departing, maybe key employees leaving, long time customers with a relationship to the owner not continuing to maintain the working relationship, and so forth. All of those “risks” are reflecting in a lower Multiple, which in turn, creates a vastly different Valuation Picture…

So it is little wonder most Family Owned Businesses that do not recognize these issues, sell for 30, 40 even 50% or more LESS than their intrinsic value. It just is the way it is. Unless you do something about it.

So let’s be clear: It’s not a “fault” issue. In fact, it often is not even about a “Quality” issue. You built a business for “Lifestyle”, not to “Sell”. And those objectives are a world apart.

If you run a $50 or $100 Million (or more!) business, you would have a CFO, a Treasurer, a Marketing Manager, with a Sales manager executing specific strategies proven to work. You would also have a CTO who ran the technology areas… and so forth. But your business does not have the scale to afford such depth on “C Suite management”. It’s primarily you, and your seasoned team. And so a Buyer sees all kinds of “potential” risks and they simply are not going to pay “full” price and bear that risk. They will bid down so as to absorb the unknowns.

This is why Private Equity groups buy companies like yours, aggregate them under one roof, and create economies of scale.

That leads to more sustainable predictable Earnings, and a higher Multiple when they bring this bundled NEWCo to market, selling upstream to a bigger fish. As an example, for $5 to $7 Million businesses, aggregated, become a $40 Million enterprise, where a still larger Private Equity firm would look to acquire this NEWCo, and so on. What matters here is the intrinsic value of your business will not be realized by you. Some PE firms will realize it… if you do not take action, now!

Your job, as you look to sell, is to see your business the way a buyer sees it. Understand your perceived vulnerabilities to a sustainable earning and growth rate. And address it before going to market.

Do that, and you will add 30, 40, even 50% to what a Buyer would be willing to pay you, today, for your fine business. It really is that simple.

Let’s say your “Adjusted Earnings” is $1.5 - $2 Million. A Multiple may be in the high 3’s to low 4 range. So maybe to a Buyer, your business is worth something like $5 - $7 Million. How important would it be to you to not settle for something in that range, but in fact have a Multiple in the 5 - 6 range, on Adjusted Earnings of $2Million, and get offers approaching $12Million? I bet it would matter to you, as well as to your family.

So what do you do, now, in solving this problem?

It starts by taking the Survey. Understand what a multiple is, what comprises a Multiple, how you score on the individual components of a Multiple, and where you could/should score based upon your specific business situation.

Not only do you see your business in the eyes of a Buyer, but you see where you need to stand if you want to command an industry-appropriate full-value Multiple.