The valuation gap is the difference between the business owner’s expectations regarding the value of their company and the market value. The problem can be severe, potentially leading to the failure to close the merger and acquisition deal. It is usually caused by a lack of information on the owner’s side – many business owners do not know their exact value.
Therefore the price they set for their business is unrealistic. Here are some tips on how to sell your business and avoid that pitfall:
- Never base your company’s value on a recent sale of a company similar to yours – every company is different, and the value of the transaction that involved one of your competitors is only very vaguely relevant for the deal that you will complete;
- Don’t expect to be paid for emotional capital – building a successful business takes lots of effort and sacrifice, but those efforts and sacrifices cannot be monetized by including their value in the sales price;
- Develop a suitable strategy – the valuation of a business is a lengthy and complicated process that needs to be handled with professionals’ involvement. Allow your experts sufficient time to do their work and proceed to the next step only when the valuation is comprehensive and correct down to the tiniest detail.