“Cumbee, you don’t know what the heck you’re talking about, my company is worth way more than you’re telling me.” Mike (not his real name) was about to tell me what to do with the valuation I prepared for his company, and he used a word other than heck. I could appreciate his frustration. Starting his company during the ‘08-’09 recession, Mike had done everything right to build his business to $9 million a year. He was pulling down a handsome profit, too. Over the past four years he had banked almost $3 million. His best year was 2015 when he made $980,000. He had a right to be proud of his company.
Mike had called a few weeks earlier for help through the process of valuing his company and taking it to market. He had been referred to me via his pastor who knew me because I helped his brother sell a business. When Mike and I first met, our rapport was strong, I felt like I was going to enjoy working with him. But once I began to explain my valuation logic, I could feel the rapport melting away.
Mike had been told by another broker that his company could be sold for $9 million, so that set Mike’s expectation before we even met. My valuation logic was based on the usual quantitative factors, but I also looked at the qualitative issues a buyer considers when they evaluate a company. While Mike’s business was indeed profitable, I knew there would be questions about its sustainability without Mike. That’s why I thought its market value was closer to $4 million.
Suffice it to say, Mike selected the broker who told him what he wanted to hear, and he has started down a path that I believe will be eventually prove fruitless. But I have to admit, I was a bit rattled by Mike’s energetic challenge to my logic. As luck would have it, right after that meeting I headed for the airport to see my son in San Diego. I had a four-hour flight to reflect on my meeting with Mike and re-think my valuation logic. I pulled out a legal pad and starting writing the questions I commonly hear as a buyer evaluates a company. I came up with 18 questions that I seem to always hear. I converted these 18 questions to an online poll on my website that I call “Know Your Value.” A business owner can take the simple free online test and see how a buyer would perceive their company, and learn how that perception affects their valuation. The 18-question test takes about 3 minutes to complete, and the results are instantaneous. There is no charge for the test, I don’t even ask for an email address. This is a free service I created to help business owners develop a realistic perspective on the qualitative issues that will come up when their business is being evaluated. Try it out, let me know what you think ….
JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee.
Tennessee Valley Group
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