It's Always A Challenge Getting A Buyer And Seller To Agree On A Small Business's Value
On December 11th, Dave Franzetta, co-author of “Changing Places,” talked with radio host, Kerry Lutz, on FSN, the Financial Survival Network. This is Part 3 of a 4-part edited version of the radio interview.
Changing Places is a helpful guide for small business owners planning to exit the company they built and move on with the rest their lives.
KERRY LUTZ: Sometimes succession and transition planning includes looking for buyers for the company. And selling a small business presents lots of challenges that you wouldn’t have with a publicly traded company, obviously, right?
DAVE FRANZETTA: Absolutely. Maybe the single biggest issue in selling a small business is getting a decent valuation; one that both the buyer and the seller can agree on. It’s somewhat like selling a home you have lived in for 25 years. If you live in that home, you don’t think of it as merely a chattel–a parcel of real property that you can sell. It means much more to you than just the bricks and mortar; so you want to get a high value for it.
But, there is very often a large disparity between what a buyer and a seller will see as the value of a house. At least it’s easy to get comparable values for a house. It can be very difficult to get the right kind of comparable values for a business, especially a small business. The problem is even more difficult when much of the value of a small business is not in the tangible assets that it owns, but in the trade value, arising from the intangibles that are created by the specific individuals who built the business.
If you’re going to buy a business, and you’re buying a trade name, what’s the value of the trade name when the individual associated with that trade name leaves that business? Getting buyer and seller to agree on value in cases like that can be really, really tricky.
KERRY: And again, the sellers can have a lot of emotional issues wrapped up in their business–people’s sense of identity, their family history and a lot of unresolved issues come up as well.
When you deal with small businesses, maybe you need to be part financial analyst, part lawyer, and part psychologist.
DAVE: Exactly. That’s how my practice in this area started. I was working with a company as their financial advisor and serving on their board. The company had also been working with a corporate psychologist for a number of years. We both got involved with the company’s succession plans and leadership development, looking at it from different angles. We saw that our collaboration could become a really great fit for working with clients. His 35 years as a clinical psychologist fully prepared him to deal with issues like this. Combining his psychological, clinical skills with my business experience in mergers and acquisitions, sales and business valuations allowed us to bring a truly advanced tool kit to work with businesses. It has been great for us.
KERRY: I am sure it has.
To be continued…stay tuned for the final Part 4 in the next post!
Check it out: “Changing Places: Making a Success of Succession Planning for Entrepreneurs and Family Business Owners”(published by AuthorHouse).
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