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Enterprise Value Includes Asset Value

As we walked through his manufacturing plant, I surmised most of his equipment was fully depreciated, but I also noticed the plant floor was clean and the place seemed to run with impressive efficiency.

He said “Hmm, that sounds about what I expected,” but then he dropped this on me,

“But what about my assets? I have over $3 million worth of equipment out there” as he pointed toward the factory floor.

I quickly pointed out that that was not right, but in fairness, how that concept is explained can lead to it being misunderstood. That’s why I told Henry the business value (a/k/a, enterprise value) is the combination of assets and goodwill.

But to be clear, the allocation does not change the enterprise valuation.

With a wink Henry said, “That’s a concept I fully understand.”

Enterprise Value Includes Asset Value

“It doesn’t work that way. You don’t value a business then add asset values to it. The market value of your assets is embedded in your business’ valuation.” Henry (not his real name) was one disappointed guy. But our conversation didn’t start that way. We were talking about his interest in taking his business to market in early 2023. As we walked through his manufacturing plant, I surmised most of his equipment was Read More

I Have a Buyer (insert eye roll here)

“He said he had a buyer for my company, but he wouldn’t give me any details until I gave him my financials. I should have known he was just fishing.” Zoe (not her real name) reached out to me on the recommendation of her financial planner. A few weeks earlier she received an unsolicited call from a local business broker who told her he had a buyer for her company. The broker’s call came at an interesting time, as Read More

When Family Legacy is a Boat Anchor to Decision Making

She could barely hold back the tears. Wanda (not her real name) was telling me how her grandfather started the business after World War II. Her dad took it over in 1974 when her grandfather was diagnosed with Parkinson’s disease. Wanda started in 2002, and her dad poured his heart and soul into training her to take over the company. Unfortunately, he had a rare heart disease and died in 2007. “I wasn’t ready to take Read More

How to Find the Right (Best) Strategic Buyer

“I don’t know, Jim, I think it’s time to sell. I just can’t seem to pull the trigger.” I met Jack (not his real name) a few months ago because our grandsons play on the same baseball team. We’ve never talked business, but recently Jack casually asked, “How's the market, Jim, are you staying busy?” That opened the door to talk about the current market for private businesses, at which point Jack opened up about his Read More

The Risk of Waiting

“At the rate I am growing, shouldn’t I wait a couple of years to sell my business? I’m bound to sell it for more if I wait.” Colin (not his real name) owns a fantastic business. He bought it 17 years ago with no idea it would become as successful as it is today. “I was just tired of my job in an office building, I didn’t become an entrepreneur to get rich,” he said as he told me how he got into the business. But by Read More

Negotiate or Auction?

“It is a match made in heaven. I’ve known for years they’d want to buy my company eventually. Should I negotiate just with them or take my company to market and bring in other bidders, you know, get an auction going?” Though having just celebrated his 73rd birthday, Tom (not his real name) was still going strong. The company he founded in 1982 was generating strong cash flow, and there was nothing on the horizon to Read More

Second Generation Complacence

“Oh I just love this house,” Emily (her real name) said as she was checking out. “It’s a shame it's fallen into such disrepair. We have so many memories over the years, but we can’t stay here next time we’re at the beach.” Emily loves going to Seaside, a wonderful community on 30A in the Florida panhandle. Her family has been going there since her children were young. For the past few years, she and her husband Jim Read More

The Value, Yet Discomfort, of Selling to a Competitor

Robert (not his real name) is ready to sell his business. During our recent call to discuss the process, he described himself as “done, done being a business owner.” Robert took over the business from his father 20 years ago. Though he didn’t say it, I got the impression that being a business owner wasn’t Robert’s preferred career choice. I’ve seen this phenomenon before, when someone is essentially forced to take Read More

The Gift With Strings (not the good kind)

“I have decided it’s time I step away from my business, and I want to sell it to my employees.” Linda (not her real name) invited me to her plush office to discuss her retirement plan and to show me the awards her professional services company had won over the years. It was impressive, but I was more impressed when she started telling me about her side business, real estate investment. In 2004, Linda and her husband Read More

When Your Vision is Just a Blur

“If a buyer has just a bit of vision for this business, they could hit it out of the park.” Paul (not his real name) was asking for my help to sell the business. At the age of 75, you’d assumed he was ready to sell, but he wasn’t the decision-maker. His 92-year-old uncle still owned the business that had been in the family since 1972.  Paul had finally convinced his uncle it was time to sell. You think? Running a Read More