Do I need a valuation before selling a business? [case study]

The simple answer is ‘no’, you don’t need a valuation to sell a business.

However, in terms of engaging JPAbusiness to sell your business, the answer is a resounding ‘yes’, you do need to get a valuation before you embark on a sale process.

The reason for that is part of our point of difference among business brokers. It’s based on a lesson learned early in the life of JPAbusiness, and backed by years of subsequent experience. 

How we came to be business brokers, as well as advisors

Many years ago, not long after I started JPAbusiness, I walked into a successful owner’s business – we were just advisors at that stage – to talk about their business performance and other opportunities.

I sat down with the business owners, who were in their 60s, and started talking about an opportunity I thought they might be interested in.

Eventually they said: “Look, we’re not really interested in that. We actually want to sell our business.

“In fact, we listed the business for sale with a broker six years ago.

“It’s a successful business – a profitable business in a regional location – and we’ve spent all this time, effort and money on marketing, yet the business still hasn’t sold.”

I said: “That’s strange. Why do you think it hasn’t sold?”

“We don’t know. The broker advised us what price to list it at. We listed it. We paid money for advertising and the like. Six years on, we’re still here. We’re no closer to retirement.”

Those clients were very frustrated and asked me if I could help them sell.

At that time we were not licensed business brokers – we didn’t have any experience in selling businesses!

Step one: valuation

The first thing I did, before giving them selling assistance, was say: “I need to value your business to understand what it’s really worth in the market today.”

The result of the valuation was a revelation to them, as the value turned out to be some 35% below what they had listed it for.

Once we became licensed brokers, and as a result of re-listing the business at a much more realistic price, I eventually sold it for the couple, achieving their retirement goals and learning a valuable early lesson for JPAbusiness in the process.

This lesson has shaped our advice to clients who are thinking about selling: be informed about your business value before you go to the market.

Independent advice critical

When seeking advice on the value of your business, make sure the advice comes from someone with experience and knowledge in the market. They should also be independent in terms of their position in giving you that advice.

That’s why, in doing a valuation for a client who is looking to sell their business, we will not be engaged by that client to sell their business until after we have given them independent advice on their business value.

Information lets you weigh up options

So, yes, you can go to the market without a valuation, but the risk is you’re going to die wondering why you didn’t sell your business or get what you thought you should have gotten for it.

Knowing the facts and being well informed as to your business’s potential value will provide decision support and help you go to the market with confidence.

Alternatively, it may help you decide there are other options in terms of getting that value out of your business, if the valuation indicates that taking it to the market may not be the best course of action.

If you would like support with any aspect of selling your business, contact the team at JPAbusiness on 02 6360 0360 or 02 9893 1803 for a confidential, obligation-free discussion.

James Price has over 30 years' experience in providing strategic, commercial and financial advice to Australian and international business clients. James' blogs provide business advice for aspiring and current small to mid-sized business owners, operators and managers.