Authenticating Your Business

Tuesday, February 26 2013

You can’t always tell if something is real. Fool’s gold, Ponzi schemes, green labeling, creative resumes; most of us have been duped at least once by someone who deliberately misrepresented themselves or their deal. A prospective buyer looking at your company has every reason to want to make sure that the presentation of your business is authentic – the real deal.

When asked what he thought his business was worth, one business owner replied, “$14 million.” Invited to share his rationale for that figure, he said, “Well, my wife and I need about $5 million to retire, we have four kids and we want to give them a million each; and, we have some long-term employees we’d like to reward and that will take about $5 million.” While his reasons for pricing the business were genuine, his figure wasn’t based on a realistic assessment of the value contained within the business itself.

What is your business really worth? Could you defend the price you’ve come up with? Would there be a significant spread between what you think it is worth, what your accountant thinks it is worth, and what a prospective buyer is willing to pay?

One factor in any buyer’s decision-making is the level of trust you establish with him/her. You will be more successful in developing a trusting relationship if you are honest in the information you provide. Due diligence is the responsibility of the buyer, to ask the right questions, to dig for the right information in order to make an informed decision. It’s the responsibility of the seller to be transparent and factual.

Like a work of art, a business is more than sum of its parts. There are many factors that can be measured and assessed to help ascertain its value. This is accomplished through the due diligence[1] process.

You can expect a prospective buyer to do their due diligence, and if you have prepared the items they ask for, your transparency will help to build trust and confidence that what they see is what they are going to get.

Valuing a business is not black and white or pure science. Getting the seal of approval from an outside firm – your accountant or a Chartered Business Valuator will add even more credibility to your assertion that your business is worth what you are asking.