How To Come To Terms With a Low Business Valuation
In this blog post, I'm addressing something crucial yet challenging—what to do when your business isn't valued as highly as you hoped.
Understanding the true worth of your business is significant. It helps you determine your current position and your desired destination.
However, many people get stuck because they're unsure of the next steps after a low valuation. That's where this blog post comes in.
I'm going to guide you on how to transform a low business valuation into your next big win. Let's dive in and make it happen!
A Story to Kick Us Off
Before I dive in, let me share a quick story. The first time Leona Watson went to sell, she was ‘over it’ and had a very rough idea in her head of what her business was worth. She was shocked at the low ball valuation she was given - 25% of what she was looking for. She left the conversation feeling angry, but it also ‘forced’ her to fall back in love with her company.
“Reverse psychology in action, I’m a bit embarrassed.” Leona calls it. “In all honesty, I wasn’t ready to sell emotionally, nor was the business in it’s best shape.”
Deciding to sell your business when you're feeling drained, is one of the mistakes owners make selling their business.
Over the next 18 months, Leona concentrated on a few strategic points (like to ones below in this blog post) to increase the value of her business, and sold and exited within 8 months of going to market. Her story is a testament to the power of strategic action.
1. Relax, it's not the end of the world
Firstly, take a deep breath. 93% of small business owners find out their business is worth less than they thought when they get their first valuation. A low figure doesn't mean your business is a failure. It's actually an opportunity to improve. Consider it a game where you're learning the rules as you play. A lower than expected valuation is your chance to strategize your business game intelligently.
”When I aimed to sell my blogging business, the first broker's valuation was disappointingly low. I sought out additional brokers and tapped into my network, ultimately listing at a price 2.5 times higher than the initial valuation. This experience taught me the importance of seeking multiple options to avoid settling for less.” says Georgi Todorov.
He sold his blogging business for 6-figures and is now the Founder of Create & Grow.
2. Identify the gap between the current value and your desired exit price
Now that you've determined your current position, it's time to clarify your end goal. It's like planning a road trip. You need to know your starting point and your dream destination. Once you have that, you can start planning the optimal route to get there.
When deciding how much you want to sell for, consider calculating two different figures:
the 'Walk Away Amount': the money you receive from the sale, after paying taxes and expenses.
the 'Magic Amount': the minimum money you need to secure your lifestyle for the rest of your life, along with other specific financial goals.
The founding team at bizval, a global valuations tool for business of all sizes, confirms that ‘the gap’ is a common problem, driven by both a lack of understanding by the owner of valuation techniques and a cognitive bias of those owners being in love with their businesses. The incredible peeps at bizval are the ones offering a complimentary business valuation + personal consultation (worth $500) as a presale offer to our flagship course (limited offer valid until June 1st 2024).
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3. Know how to close the gap
Just as you wouldn't embark on a road trip without a map, we wouldn't dream of beginning to close the value gap without knowing the different options. That's where knowledge comes in. Educate yourself on:
what makes a business valuable
how businesses in your industry are valued and what common multipliers are
know all the opportunities to multiply the value of a business
know how to prepare your small business for an exit
Each business is unique, as is its owner. That's why it's crucial for you, as the owner, to learn about the overall exit game and the different pathways to close the gap. Knowledge is power.
“Far too many business owners do not know their ‘business numbers’. So one of the first steps is knowing your KPI’s. You’ll then be able to make better decisions on how to close the gap” broker Steve Kilberg of skrpmedia.com comments.
4. See how much gas you have left in your tank
This next step is all about assessing how much energy you have to make your business valuable and sellable. Apart from the numbers, your personal feelings and energy level are important factors in navigating towards a life-changing exit. Read my blog post about the 7 signs it is time to sell your business.
Sometimes, life throws curveballs, and you might not have the time or energy to keep pushing. It's okay to sell if you need to. But if you're up for it, pushing a bit can significantly increase your business's worth when you do decide to sell.
5. Strategically work towards closing the value gap
Entrepreneurs often stand on the brink of a big exit, sometimes without even realizing it.
Recently, I had an eye-opening conversation with a founder of a digital marketing agency. When I asked about her vision of a successful exit, she had a figure in mind that would change her family's life forever. She also came armed with a roadmap, forecasting a 5 to 7-year journey to reach that big exit. However, after a thorough examination of her business, it became clear that about three-quarters of all her to do’s weren't aligning with her exit goals. By knowing the shortest route on how to close the gap, her 5 to 7-year journey was reduced to just under 25 months.
The key takeaway? Many entrepreneurs, much like her, are often closer to achieving their aspirations and closing the value gap than they think they are.
“Buyers usually care about a handful of things. Recurring revenue, lean teams, consistent growth, documented processes and the owner not being needed. If you focus on these, you can increase your valuation.” Nathan Hirsch comments.
He exited FreeeUp in 2019 and now runs two bookkeeping brands ecombalance.com and accountsbalance.com.
In my blog post “How your team can triple your exit price” you can read how building her team and hiring a CEO led to a $4.5 million exit for Caitlin Pyle of Proofread Anywhere.
Conclusion
A low valuation isn’t the end; it’s a new beginning. With strategic planning and a dash of grit, you’re not just preparing to sell; you're gearing up for your next grand adventure.
Remember, every step you take brings you closer to not just any exit, but the exit you've always dreamed of.
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and get a complimentary business valuation + consultation.
After the 1st of June? It’ll cost you an extra $500.
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