How we value your business
Putting a price on your business…and why we don’t let you name your ‘magic number’
At a recent Q&A event for entrepreneurs considering selling a business, one comment in particular made quite a stir. Former client, Alison Lessmann, told attendees: “BCMS won’t let you name your price to the buyers – that’s a golden rule. Whether it’s £5m, £50m or £500m, you are told in no uncertain terms to keep that information to yourself, and make the buyer decide what your business is worth to them.”
There are many strands to the answer. Firstly: price-chipping. It’s human nature to go for a bargain, and that’s the same in business sales as it is in any kind of deal-making, from property to fine art auctions to car boot sales. If you’ve set an aspirational asking price with your buyers – and it’s usually a round number – then one of three things will likely happen.
One: you’ll get a lowball offer, in the hope that money on the table will tempt you. Two: you’ll get a ‘one-time-only, take-it-or-leave-it’ offer. Three: you may get a buyer meeting your terms and offering a warm handshake immediately – and that’s a sure sign that you have hugely undervalued your business, and your magic number was miles off.
I’ll give you an example from a deal that completed just last month. Following meetings with 13 different parties, our client had seven different buyers in the frame. The lowest first offer came in at £2.27m. Most of the other parties came in at around £5m (another round number). The eventual buyer entered negotiations at £4.2m, before revising to £5m, and eventually tabling £7.3m. That’s a £3.1m uplift, from the same buyer, for the same business, over the course of a few months!
And that’s why, as Alison rightly says, we won’t let our clients name their price. Business valuations are moving targets. Don’t pick a number: it could be the most expensive mistake you ever make.