Owners deriding their own business’ value

Owners deriding their own business’ value

Business owners are often failing to adequately serve their biggest customer of all – the buyer of their business – which can adversely affect the final sale price.

“Being in business can be lonely and often business owners are so busy working in their business that they can’t see the forest for the trees,” said Jeremy Streten, a lawyer and author of The Business Legal Lifecycle.

The problem this has when it comes time to sell a business is that the owner fails to treat prospective buyers of their business as they would any other customer in the business.

“When a person is buying a business, a main consideration for that buyer will be how they can look at expanding that business,” he said.

“This is a natural consideration that a potential buyer will have for your business as they are looking at ways that they can maximise the return on their investment.”

According to Mr Streten, providing prospective buyers with scope for future growth, such as current opportunities or prospective new customer segments, is a value-add for buyers – much the same as a green grocer or butcher providing recipes for how those ingredients can be used.

Such an approach, he said, can have a material impact on the final sale price achieved, or provide the business owner with valuable avenues for growth to pursue should the business not sell.

For Todd Lynton, who bought into Sydney lighting importer and retailer Special Lights in 2007, the real value lay in the established supplier relationships and the opportunities to exploit these further. However, ascertaining this value was complicated by the lack of written supplier agreements.

“I looked at the top four brands that were important, because that was the asset that was advertised – ‘weve got good brands and long relationships’,” he told My Business.

“So I sat in on a phone call with the owner of those companies in Europe before committing, saying ‘Is special lights your exclusive Australian distributor?, yes; ‘[Have you been together long?], yes; Do you see a long-ended future? Im thinking of helping to grow this, good. So those type of basic conversations at first to give me some confidence in the absence of contracts that in effect what verbally is being suggested is fundamentally correct, as it was.”

Owners deriding their own business’ value
mybusiness logo

Related Articles

promoted stories