ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

What Some Business Owners Think Their Business Value is?

Updated on February 14, 2014

What's a Business Worth to You?

Business Value - You think it's worth what?!?!

Often in our line of work we deal with business owners who would like to sell their business. Sometimes they have good reasons and sometimes not. Either way the topic of "what's my business worth?" surfaces pretty quickly.

Let's go through a couple valuation methods that I all too often run into when someone calls me to talk about selling a small business. All the names are made up but the situations sure aren't.

Let's meet John......

He owns what some would call a little machine shop.

John calls me one day, we have a brief introduction and I set an appointment to visit John at his machine shop to talk about selling his business. After I tour his facility we sit down and the conversation goes like this.

Me, "John, you are obviously thinking about selling your business can you tell me why?"

John, "I've built the business up over the last 4 years and I'm ready to sell."

Me, "Owning a business 4 years isn't very long, why sell now?"

John, "The timing is right, I hear the market is hot for machine shops."

Me: "You say the timing is right and the market is hot why do you think those things?"

John, "Because my buddy Joe sold his machine shop for $1million and I only want $500,000 for mine, so I know it will sell."

Me, "How profitable is your little machine shop?"

John, "well, it's not now but it's ready to take off."

Me, "how did you come up with a price of $500,000?"

John, "I've lost about $125,000 per year for 4 years, that equals $500,000 and that's all I want is to get my $500,000 back. It's a great deal."

Me, "why would someone pay you $500,000 to lose $125,000 per year?"

John, "Because it's ready to take off." Me, "if you don't sell the business what will you do?" John, "I'll shut it down, I'm out of money."

Now let's meet Mary the Staffing business owner......

I go to visit Mary. Me, "Mary thanks for seeing me. Why are you thinking about selling the business?"

Mary, "I've owned the business 15 years, I'm 62 and I'm ready to retire."

Me, "How is the business doing now?" Mary, "it's ok, pretty steady."

Me, "Is the business profitable?" Mary, "Yes, counting everything I make about $100,000 from the business."

Me, "Have you thought about how much think the business is worth?"

Mary, "Yes, I know exactly what I want for the business." Me, "o.k., what do you want for this business that makes $100,000 per year?"

Mary, "$2,500,000"

Me, "How did you come up with that price?"

Mary, "I want to keep getting $100,000 per year and I need $2,500,000 to invest and then if I make 4% on that I'll get my $100,000 per year."

Moral of the story.....

Never confuse what someone wants for a business with what a business is worth. This issue often happens in reverse as well. A business owner often has a business that is worth more than the owner thinks it worth. Those are much more pleasant meetings for me. Learning about valuation methods that can help yo navigate the business buying and selling process.

  • If you want to learn how to create a valuable business I highly recommend these to books:


Comments

    0 of 8192 characters used
    Post Comment

    • BizVT34 profile imageAUTHOR

      BizVT34 

      6 years ago from USA

      Robert Erich, sometimes you gotta take the medicine but get back on the horse. Every biz doesn't need to be successful in order for you to be successful. Thanks for stopping by my Hub.

    • Robert Erich profile image

      Robert Erich 

      6 years ago from California

      BuyaBiz! This is a very useful hub. I have definitely looked into sell and buying several businesses and it is so upsetting to realize that you won't make enough to cover your losses from selling the business. Sometimes, however, you just have to do it...

    • BizVT34 profile imageAUTHOR

      BizVT34 

      6 years ago from USA

      Debbie - it happens allll the time! Thanks for stopping by.

    • Deborah Brooks profile image

      Deborah Brooks Langford 

      6 years ago from Brownsville,TX

      wow., is that really true? people think like that? very interesting

      voted up

      Debbie

    • profile image

      JWH 

      6 years ago

      How interesting! It can be so easy for a seller to define a business worth as what the seller wants, instead of what the buyer would deem reasonable!

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)