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Buyers Are Not Rewarded for Overpaying for Your Business

Eighty percent of the businesses that go to market never sell. Sadly, most business owners who are ready to go to market tend to overvalue their business and expect a value that does not support the company’s current cash flow. As an M & A Advisor for middle market companies, we recognize that sellers bring an emotional attachment to their business, which creates an inflated value, whereas buyers are exclusively focused on profits and how likely those profits will continue in the future.

While having a highly – trained sales force, stable customer base, and a catchy website is important, owners often separate these intangible assets from profits and believe that buyers should pay separately for them. However, what they don’t realize is that these assets are considered “goodwill” and is already factored into their cash flow: people do business with you because they know you exist and this creates the revenue for your business.

Even though there are some core value drivers, a lot of a business’ value depends upon who is looking at buying the business:
• A strategic buyer, who is within that industry and may be looking to acquire the company, is going to look at the synergistic value drivers. They might roll up the operation and move it to their current base of operation or even scale down the business to operate more seamlessly.

• A financial buyer is likely to keep the business operating from the same location and with the same operating model. A financial buyer is someone who wants to run the business as an operator or owner and is looking for a return on their investment.

Think of it this way: If someone is looking to purchase a car to commute to work, they will look at the whole car and what it may be worth. Whereas, if someone needs the engine of that car and is driven to purchase the car for that specific engine, they might offer a higher price to make that deal happen.
Businesses are dynamic assets with various moving parts. Our responsibility, as M&A Advisors is to help sellers of businesses manage their expectations between price and value by learning what the true value drivers are for their business.

By working with an M & A middle market advisory firm like CitiusMA, clients are able to determine a more realistic value for their business. We can then help them determine the best structure to maximize that value so that they can move on to the next phase of their life.
By helping sellers gain a clear idea of what their business is worth, they can then begin to plan a realistic future for their life after the sale. With that goal in mind, business owners have a much better chance of selling their business, regardless of its value. For more information, contact Ric Hepburn at: ric@citiusma.com for a confidential conversation.