You’ve always known there was a possibility you might want to sell your business.
In three years. In five years. In ten. You know that eventually, you’re going to put it up for sale and start fielding offers from prospective buyers.
You expect you’ll be able to get a good sale price, naturally. Your business is profitable, and you’re working on making it more profitable. Whatever you sell, it’s a quality product or service. The numbers are good. The people know their jobs.
You figure the price will be about 5 times EBITDA. Something like that.
Would it surprise you to learn that in all likelihood, you’re only going to get a fraction of that number?
What Makes a Business Valuable?
Nearly every business owner in the country currently operates under a misguided impression of how their business’ value is tabulated.
This misconception isn’t limited to business owners who are inexperienced or uneducated – it’s a piece of misinformation that has been repeated so often that it’s become common knowledge.
This is the misconception: your business’ value is directly tied to your revenue. Increase your revenue, increase your profits, and you’ll increase the amount your business is worth.
It seems completely reasonable.
The only problem is that it’s completely wrong.
When your ultimate goal is to sell, there are a half-dozen factors that make up the price your business will eventually command. One of them is your revenue, yes.
But there are five or six other factors that matter just as much.
If your only concern is how much revenue the business is bringing in, you are only improving a fraction of your business’ value over time.
Which means that when it comes time to sell, you’re going to be sadly disappointed by the price you’re offered.
It’s Time to Shift Your Focus
Most business owners make one crucial mistake: they’re focused on making their business profitable in the short term – rather than over the long haul.
Businesses should be profitable in the short term, and I’ll never argue for any strategy that suggests you shouldn’t make a profit. What I will argue is that sometimes it’s better to make $30,000 less profit over the next quarter – so that you can increase the eventual sale price of your business by half a million dollars.
You’d be amazed at how often it happens.
This may be happening in your business right now – and how you may unwittingly be working against your ultimate goal.
The exit from your business can be an overwhelming success or it can be filled with frustration and failure. Even smart, successful business owners are so often unable to maintain their business’ value over time.
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