Any experience in educating sellers on how to value their company?

by a searcher from Babson College - F.W. Olin Graduate School

2 years ago

Inquired and received a call-back from an interesting prospect. Generally fits my target profile as a company, but my instinct is that this business is over-valued. The seller doesn't have an approx cash-flow number or any summary documentation. Will be sharing soon, but in the meantime, I'm curious are there any best practices/content on educating a seller so you can continue the conversation? I don't want to waste my or his time.

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professional from University of Akron

For most of the owners / founders at this size, the business is their baby...

In general, your "education" will most likely be looked at very negatively especially when you think of it terms of you "educating" them. In fact, you will probably have a very difficult time making any deals if that's the mindset you have.

In the end, it should be a partnership. It should be about building trust. Find out what matters to them, what they value (not just money) and what they think it's worth.

When you have that relationship, trust and partnership approach, you have a better chance to lead them to a mutually beneficial deal structure and even value.

Remember, value is a very subjective thing. If you are approaching owners with a very analytical, numbers-only approach, it's going to be very difficult.

The biggest and most important aspect to success as a searcher, business owner and the trait that makes someone a real entrepreneur is leadership... If you approach owners as a leader looking to partner with them, you will find success.

If you approach an owner as a financial analyst looking to educate them on the value of their business, probably not so much.

So the goal should be to come to an agreeable deal... Not educating the Subject Matter Expert (the owner) of what their business is worth.

2 years ago | like reply | 2 likes

professional from University of Dayton

Chirag - if they haven't done their homework on exiting the business then it may be a longer process than you want or think. Rory's advice is sound that having them reach out to one of their trusted third parties, including their personal financial advisor. Depending on circumstances selling a business can be more emotional than logical. Working with those parties can give them a feel for the process. It's worth keeping the lead warm while they go on their exploratory journey and even trying to cultivate the relationships with their team if it does look like the deal will progress.

Short of them working with their advising team I do have a five page white paper on preparing to sell a business that I could send to you to forward on if you'd like.

2 years ago | like reply | 2 likes

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