Summarising why many more businesses are overvalued than undervalued, top broker Andrew Rogerson says: “People selling a business think ‘I’ve been working on this for 20 years so it must be worth a lot of money’ – but it’s really about the cash flow of the business.
That comes as a shock to many business owners; they put their heart and soul into the business and think it’s worth a lot of money.”
The problem is all the more acute the longer they have been running the business, adds Rogerson, owner and managing director of Sacramento Murphy Business and Financial Corporation Office. On the one hand they equate longevity with value – which to some extent can be true, though ultimately, a business that has just scraped by for 30 years it will likely be considerably less valuable than a five-year old business which has just posted a £500,000 profit.
On the other hand, they feel their many years of service should be rewarded and they have a strong emotional bond. And yet, ultimately, it’s the profitability of the company, not the amount of work invested or the sentimental value, which determines value.
If you want to sell a business, you must remember this.
