Chicago M&A Advisory Firm

Why A Business Valuation Calculator Isn’t Enough To Negotiate Price

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Why A Business Valuation Calculator Isn’t Enough To Negotiate Price

You’ve built the business over the last 40 years or inherited it from family and have run it for the last number of years, but it’s really not your passion, that’s okay. These are just a few of the reasons we hear when clients contact us to assist in selling a company.  Whatever your reason for selling, maximizing the cash value of your business is likely one of your top goals for the deal.  You’ve been around the web, plugged in numbers to a series of business valuation calculators and would love to take the biggest number, but the pragmatist in you realizes that the 2nd largest number is more accurate.  But is it?

The folly of the business valuation calculator

Calculators are designed to crunch numbers and rarely can take a series of tangible and intangibles, cross-reference comps, and put together a realistic value range should the business be listed today.  Some of the more common forms of online calculators opt for one of several raw calculation-based methods of valuation:

  • Discounted Cash Flow Value
  • Multiplication of Revenue
  • Valuation of Assets

While these are important numbers to have, they do little to consider the market size/opportunity, reputation and position in the market, and intangibles such as staff skill and capabilities.

By latching onto a specific number range before you speak to a qualified business broker you’re chosen figures may be off.  Way off.  You run the risk of either sitting on a business that is way over-valued or worse yet, grossly under-valuing your business and missing out on a significant portion of proceeds from the sale.

Where Business Brokers Add Value

Your first inkling might be that the business broker is like a car dealership for your business: the manufacturer (you) sets the list price, yet offer the dealership (the business broker) the flexibility of a specific range to masterfully discount or adjust deal terms to close the deal.  This type of thinking accomplishes two things:

1.     Undervalues one of the broker’s greatest skillsets

2.     Sets your business up for a disadvantageous positioning and possible deal in the market

No matter how many business valuation calculators you’ve filled out, the real number crunching—the numbers which appear with a listing—are the responsibility of the business broker.

While your business value shouldn’t be determined by an online calculator, gathering more information on how ready you and your business are to list can be accomplished online.  We’ve put together a helpful questionnaire to help business owners make a better determination at both operational and emotional level how ready you are to sell your business. Take our short business readiness assessment and then schedule your complimentary confidential consultation to learn how Sun Acquisitions can help you sell your business at the right price.

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