Selling Your Business at the Right Time: Ohio Appraiser Explains
“In the years that I have been a member of the Ohio Business Brokers Association (OBBA),” Dave said, “I’ve had a great opportunity to meet many business owners and discuss with them their asset strategies. These conversations are always very interesting, and it’s always a great honor when I can help somebody retire and have the money that they need to do so in the lifestyle that they desire.”
“I guess that would be pretty fulfilling,” I said. “Do business owners ever get on your nerves? You’re so cool about things, and I’ve never seen you mad.”
“No, but, I do often encounter sellers who want to sell their business and have unrealistic expectations.”
The Unrealistic Seller of a Business That Appraisers Run Into
“What do you mean exactly by unrealistic?” I asked.
“Well,” he began, “let me put it this way. I very commonly hear the following phrase from a seller who’s trying to sell their business: ‘If someone new came in here, they could really put in a lot of effort, turn this thing around, and make a lot of money!’”
“But, isn’t that what they’re supposed to do, Dave?”
“Sure,” responded the laid-back Ohioan, who has been appraising businesses for over two decades. “The problem is, the seller wants to sell their business at a price that the business would be worth after the new buyer comes in and puts in additional time, effort, and capital to turn the business around.”
I could feel a story coming on, one of the things the experienced valuator uses to teach. And, Dave didn’t disappoint. “I remember a vice president at Ashland Chemical once telling me the buyer’s value is not the seller’s value,” he continued. “When a buyer comes in and puts in all that time, money, energy and effort to turn the business around, then that’s their value, not the seller’s value.”
“That makes sense!” I responded. “They didn’t do the work, so they shouldn’t be able to sell it for that higher price.”
“An analogy would be a beautiful Corvette Stingray from 1963 that is just in a field rusting. What is the value of that? I mean, once it gets fixed up into a collectors item, it’ll be worth six figures. However, as it sits in the field, rusting, it’s not worth that amount. As the car sits there idly, it is only worth the buyer’s effort to fix it up and make it worth six figures.”
Some Owners Wait Too Long to Sell Their Businesses
What Dave was explaining to me was the fact that, not only in Ohio, but everywhere, that there are too many sellers who think they can charge too high of a price for their business based on what they think the prospect of that business could be. He told me that it’s a common refrain that too many business brokers have heard on too many occasions.
“It would be good to dissuade sellers from believing this,” the well-versed business appraiser emitted, “because it could lead to them holding on to a business past its peak, thinking they can still get value for the business at a later date.”
“So, when is the best time for a business owner to sell their establishment?” I inquired.
“I once had a business owner with a very valuable patent call me up and wish to sell their business at a time where there was only nine months remaining on their patent. The time had long gone by, about three or five years, when they could have sold their business for a much higher price, when there was still life to the patent. At that time, the new buyer could have come in and extended the patent with various opportunities, assuming those opportunities did exist. The buyer would like to have that opportunity. But, with the seller trying to sell the business with only 9 months left on the patent, I had to give him a very disappointing response to the opportunities to sell his business.”
Dave told me about another situation where a distributor of tobacco products in Southern Ohio had a warehouse that was not up to today’s standards. “They watched their business slowly decline,” he told me, “even reaching the point where the owner no longer took a salary, and just kept running the business for the benefit of his employees, so that he could continue to provide employment for them.”
“Well, he doesn’t sound like a bad guy,” I said “because he was thinking about his employees…”
“Sure,” the seasoned business appraiser interjected. “It was a noble effort on his part, I admit. But, when it finally came time for him to retire, and sell the business, there was virtually no value to it, other than the license that he had from the federal government that allowed him to warehouse and distribute cigarettes!”
Contact Dave Horning, Your Trusted Local Ohio Business Appraiser, Today!
“So, the moral of the story is the seller of a business should try to sell their business right before it reaches its peak,” Dave concluded. “A good analogy here would be a roller coaster ride. If you think about getting on a roller coaster, it initially goes up and up, until it reaches its peak. Then, it starts its downward trend. Most business owners don’t want to sell until it’s after the peak and on its downward trend. The best opportunity to sell, the best price that a seller is going to get for their business, is when the roller coaster is still going up and it’s gotten about 90% of the way to the peak. That way, the buyer looks at the business, and sees that there is still upside potential to it. That’s when the seller is going to get the fastest sale, for the highest amount of money.”
The easiest way to contact Dave for business valuations is by message at his Ohio Business Brokers Association page.
You can just send him a message here.
Or, you can email him at dave@davehorning.com.
