The Risks of Overvaluation While Selling Your Business
As the owner of a small business, valuing your business can be a tough piece of puzzle to put together, especially if this is your first time. At IndiaBizForSale, we have helped thousands of business owners in the process of selling their business over the last few years, and can answer most of the common questions that you may have. As far as valuation is concerned, a common query we get from businesses is: are there any dangers of overvaluation?
In this article, we will discuss the possible risks that come bundled with overvaluation while selling your business. We will also provide a few tools and tips to help you value your business as realistically as possible.

Risks of Overvaluation:
1. Limited Inquiries from Prospective Buyers — Just like an overpriced product gets little interest from customers, an overvalued business generates limited buyer inquiries. Most seasoned buyers and consultants have a fair idea of the range within which the value of a given business should lie, given its industry, financials, location, current market position, and so on. Overvaluation will keep away good buyers from approaching you, even before you get a chance to speak with them.
2. Loss of Confidence Among Interested Buyers — Even if you do receive inquiries from a few buyers, on conducting detailed analysis they are very likely to figure out that your business is overvalued. This will cause serious loss of confidence among buy-side, and reduce your chances of closing a deal to a great extent.
3. Delay in Closing a Deal — Assuming that you still manage to convince a buyer of the overvalued figure, you will still have a hard time closing the deal. We have seen deals even being broken off at the last minute, because the owner overvalued the business and the buyer realized it much later.
4. Tax and Compliance Implications — In the rare occasions that an overvalued business is actually sold, remember that the possible tax implications can be a burden. With transactions now being recorded and tracked digitally by the Government and tax authorities, your Capital Gains tax payable, in particular, can be a rather large amount, if your valuation is not in the realistic range.

How to Value Your Business Appropriately
Often, business owners like you don’t necessarily wish to overvalue their businesses — they are simply not familiar with the valuation process. The good news is that you can seek professional assistance in ascertaining the value of your business as realistically possible, and be able to justify it to buyers and Government authorities alike.
1. Compile All the Information Necessary to Value Your Business — Even before you start the selling process, put together all the information required to value your business, such as your business financials for the last 3–5 years, industry reports on the sector you are in, market intelligence on your business performance, financial projections, technology reports, and so on.
2. Hire a Valuation Expert with Proven Track Record — It is critical for you to understand that you need an independent professional with good credibility, track record and an overall understanding of your industry, to value your business. You can tap your personal network to seek references for such professionals. At IndiaBizForSale.com, we provide Valuation as a value-added-service through our in-house valuation expert.
3. Understand the Parameters that Support Your Business Valuation — Once you have obtained a ballpark range for the valuation of your business, discuss the potential arguments that justify it with your valuation expert and your deal consultant (if any). This is an extremely important step, and our experience shows that business owners who don’t just know their business valuation, but also understand it, are often in a better position to negotiate the valuation number with prospective buyers.

This article has been brought to you by IndiaBizForSale, the most preferred network to buy, sell, fund and grow businesses in India. If you would like to know more about what we do and how we can help you, please visit www.indiabizforsale.com or write to us at info@indiabizforsale.com.
