Susan Rosner: The Valuation Delusion Syndrome-An Epidemic Among Business Owners

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Valuation Delusion Syndrome is on the rise. Here’s a recent case.

Sam called me last week about selling his business.  Sam is 65 years old and was referred to me by a former client of mine.  He told me that he had been offered ten million dollars ($10M) for his business a couple of years ago and was hoping now to get a fifteen million dollar ($15M) cash offer.  He was interested in hiring me to sell his business.

I recommended that he get his Sellability Score. The Sellability Score is our online assessment that can provide a business owner with feedback on the key value drivers that are important to a business buyer.  These scores, along with a business’ financial history , determine whether a business is sellable and at what range of selling  price.  Sam completed the assessment and provided us with his financial history. Within a few days we were able to provide Sam with feedback as to the sellability of his business and whether the fifteen million dollar ($15M) selling price was realistic.

Sam’s Sellability Score indicated that he was running a good business.  After reviewing the financial performance of the business, we provided our opinion of value range: six hundred thousand dollars ($600K) to one million dollars ($1M). That’s right. Our valuation was more than $14 million dollars LESS than his $15M target.

As you may have guessed, Sam rejected our conclusion of valuation.  He insisted that he was offered $10 Million Dollars for his business a couple of years ago.  As it turned out, he also told me that the buyer withdrew after reviewing the financials.  Surprisingly,   Sam did not connect the dots-of course the buyer withdrew because the selling price was unrealistic! Nevertheless,   Sam insisted that the buyer wanted to “steal” his business citing all the investments that he had made over the years to build the business.  Sam rejected the notion that it is the performance of the business that matters to an acquirer not the investment that a business owner has made in the business.

In any case, Sam insisted, in spite of our expertise, facts, figures and rationale that his business was worth $15 Million Dollars.

You may think that Sam is the exception. Unfortunately, he is not.  Most business owners either don’t know what their business is worth or have a “number” in mind that they need or want.  We often hear a business owner say that they “need” a certain “number” to retire.  Or they may also say they “want” a certain amount without any business explanation. The rationale that they use is emotional and not performance based. This is the Valuation Delusion Syndrome.  Alarmingly, with baby boomer business owners reaching retirement age, this Valuation Delusion Syndrome has reached epidemic proportions.

The Valuation Delusion Syndrome goes unnoticed until a business owner decides it’s time to think about selling. This occurs when they have reached a certain age, they are burnt out, they are sick, they have run out of energy, etc.  Like Sam, the valuation delusion may continue in spite of evidence that contradicts their belief.  Of course there are business owners who when presented with the facts realize that they have to adjust their expectations.  This often impacts their plans for retirement and or lifestyle.

As for Sam, and business owners who suffer from this syndrome, well, he will continue to run his business until he no longer can-and that day will come sooner or later –it is inevitable.

When the inevitable happens, a family member or an employee may take it over, or  may close the business. In any of these cases, the business will suffer, potentially leaving employees jobless and heirs trying to fulfill obligations of the business that will cost time, money and heartache.

Do you or someone you know suffer from Valuation Delusion Syndrome? Luckily, there is an effective simple treatment.  Knowledge! There are value drivers that can improve profit and increase valuation of a business. By knowing what these are, a business owner can build a business that they can sell someday based on implementing key strategies in their business.

These drivers of sellability can help s business owner increase profitability in the short-term and value in the long-term. We recommend that a business owner learn about these sellability factors whether they are just starting out or they are close to exiting. The sooner a business owner can begin to implement these key strategies, the more profit and value they can build into their business and the more likely they will avoid the Valuation Delusion Syndrome.

There are several ways to learn about the sellability value drivers for your business and help find a cure for this epidemic! J

  1. If you are a business owner, you can click here, complete the online questionnaire and get your complimentary sellability score and report.
  2. You  can also download my e-book 7 Strategies for Preparing a Privately Held Business for Sale. Click here
  3. We also conduct webinars and seminars on this topic. Provide us with your contact information  and we will keep you informed of our next event.
  4. Submit a meeting request by clicking here and one of the partners will call you to discuss your situation confidentially.
  5. If you are a business adviser and would like one of your clients to take the sellability score, get in touch with me and I will send you the link and provide you with the report.

If for some reason any of the links don’t work, email me at srosner@claderassociates.com and I will send you an email with the urls.

Originally posted by Susan Rosner on October 1, 2014 at 11:59am

Updated: May 1st, 2021

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