| Apart from buying a business the next most | | | | at brokers. Accountants are not really trained to |
| common reason for valuing a small family business | | | | value these kinds of businesses either. During |
| is that it is yours and you want to sell out. In this | | | | college or university they will learn about different |
| case you are the one who is highlighting the good | | | | valuation formulas, but they mostly apply to big |
| points about the business and perhaps burying the | | | | business. And they have to get the experience |
| secrets. The question is, who do you rely on to | | | | themselves. |
| set the selling price and how do you know it is | | | | 4. Neither Are Professional Valuers And |
| right? | | | | Appraisers |
| 1. Business Brokers Have Their Own Agenda | | | | Even professionally trained valuers don't touch |
| Most vendors sell their businesses through | | | | small family businesses. They learn how to value |
| business brokers and rely on them to set a selling | | | | land & buildings and plant and equipment, and |
| price. This can be a mistake, for two reasons. | | | | know all about the laws and cases that appear |
| Brokers want to make a sale and earn a | | | | before Land Courts - but they are told to stay |
| commission. So the lower the price the quicker | | | | away from valuing goodwill. This is accountants' |
| they will sell. This means they may browbeat you | | | | territory. |
| into setting too low a price or reducing your price | | | | 5. So It Gets Left To The Brokers |
| if it does not sell quickly. | | | | And since goodwill is by far the biggest |
| 2. Brokers Are Not Trained To Professionally | | | | component of the value of a small family |
| Value A Business | | | | business, it gets left to the broker to value it, |
| They tend to use "rule of thumb" formulas to set | | | | because there usually is nobody else. But what |
| their prices. These can work OK for certain | | | | the broker is really doing is putting a price on the |
| categories of businesses (e.g. convenience stores) | | | | business, not valuing it. The function of the broker |
| where each business is similar to the next and | | | | is to sell the business at the best price they can |
| there is a high turnover of business sales. | | | | get, not to value it. |
| But if your business is a little different or and/or | | | | The rules of thumb formulas they use are |
| does not belong to these commonly sold | | | | shortcut methods to arrive at a price that they |
| categories, the broker may well guess at a price | | | | know from experience have been acceptable to |
| and is likely to get it wrong. | | | | buyers and sellers over the years. |
| If it is too high, then no real harm is done. It | | | | 6. Unless You Do It Yourself |
| probably won't sell anyway, and if it does, you are | | | | The final option is for the owner to learn how the |
| the winner. And you can always lower the price. | | | | valuation process works and get involved in |
| But if it is too low and it sells quickly, you will not | | | | setting the price. This will give you a lot more |
| be a happy chappie when you find out later. | | | | confidence that the price is right and empower |
| 3. Accountants Are Not Really Trained Either | | | | you to take over the selling process. |
| Don't get me wrong here. I am not having a go | | | | |