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Common and Scary Business Valuation MistakesThere is a great deal of confusion when valuing a business and business sellers tend to make the same mistakes. The startling fact is that unfortunately, so-called professionals often repeatedly make these same mistakes. Mistake # 1 – Applying a ‘one size fits all’ rule of thumbWhile a one-size fits all valuation method is simple, unfortunately it does not result in accurate business valuations. Applying the average or median ratio as a one size fits all multiplier produces misleading and unfair results, particularly to the better businesses. Mistake #2 – Neglecting to include Work In Progress (WIP) in business valuationIt is quite amazing how people who should know better often overlook WIP when valuing a business. WIP is a key element of the business value in both professional practices and contracting companies. In these environments there is usually valuable work in progress still to be invoiced. Mistake #3 – Setting a price too soon.You set yourself at an immediate disadvantage if you state a price without knowing the potential value of the business. Do not sell yourself short by setting a price too quickly. Assess the value of your business confidently with the Business Appraisal kit and then set a price. Remember, you can always come down, but you generally cannot go up once you have determined your selling price. Mistake #4 – Not identifying the best buyers.You need to spend time on serious buyers only. If a potential buyer is not pre-qualified or does not appear to be prepared to make an offer, you may very likely be wasting your time. Do not spend time with the wrong buyers. Mistake #5 - Waiting too long to sell.Many business owners regret not selling at the most opportune time. By waiting, they subsequently encounter increased competition or have a product that has declined in value because of economic conditions. If you are thinking of selling, pay attention to changes in the economy and to the state of your industry, and look for the best selling opportunity.
That’s only a few of the common mistakes! Alarming isn’t it? It’s especially alarming when you consider how easy it is to avoid these pitfalls, simply by following the principles set out in our Business Appraisal Kit.
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