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What Happens If I Get the Valuation Wrong with My Online Business?

Posted by Bill Gustin in Articles

There are too many mistakes that can be easily made if you don’t have the support of an online business broker to help you navigate the process of a sale. You might only get one shot at being able to list your online business for sale and to begin to network with prospective buyers. Trying to handle things on your own could mean that small mistakes made early on in the process could block you from being able to effectively get the most money for your purchase. Getting the valuation wrong can have significant consequences.

What’s the Big Problem with Getting the Valuation Wrong?

Many people who are thinking about selling their business have a primary concern of under-valuing the company. Under-valuing the business and leaving money on the table is a top concern for plenty of people, but entrepreneurs who over-value their business because they haven’t done a proper business valuation could be in just as much trouble.

Allowing emotions to affect your ability to arrive at a more reasonable business valuation backed by logical factors such as comparable sales, industry averages, financial performance, and the insight of an online business broker can impede your ability to list the company for a fair price and to draw in the right kind of buyers.

While it is good to be passionate about your business, and your emotions have probably helped your company be as successful as it is, of course, you still want to work towards a highest possible valuation. However, buyers will want to know that you have the details and data to back this up.

This will all be uncovered during the due diligence process, so it’s important that your business valuation reflect the true reality of the company. A valuation should always be grounded in reality and it can help to remove yourself from the process slightly by using an online business broker who is familiar with selling companies like yours in industries like yours and carrying out the business valuation process. A website broker is far more likely to capture details that could be important in valuing your online company. Your business broker will sit down with you at the outset of the sale to discuss your multiple. The multiple will start with your annual net income and then varying factors will apply to increase this.

If you arrive at a valuation that is far beyond a standard multiple range, it is likely that your business has been over-valued or that it appeals to strategic buyers. Figuring out which one of these applies could be difficult on your own, but when you have a knowledgeable business broker at your side to help you, you’re much more likely to be successful.

What Is A Strategic Buyer?

Strategic buyers are those investors who acquire companies in order to build them into an existing venture. Those strategic buyers see some benefit in adding to the existing venture and will be more comfortable with valuing the business much higher than the underlying value. This is because the acquisition is viewed as bringing substantially more value to their existing company. These strategic buyers don’t look at just the value of your business alone. You can speak directly with your business broker about whether or not something like this might apply in your case and how to prepare for it effectively.