Tuesday, September 15, 2009

This Business Has Great Potential

Here's some food for thought...

How many times have you said to yourself or heard someone else remark, "This business has so much potential. If the right person came along they could probably double sales in the next two years."

Sometimes the above comments are amended by, "With the infusion of a relatively small amount of additional capital along with some proactive outside sales efforts (etc., etc.) this business could really take off, boosting both profits and sales."

By themselves, these statements sounds fairly innocuous but the problem is most of the individuals making those comments are owners wishing to sell, or a broker with a business for sale! Many businesses, given a change in circumstances and some additional financing, can in fact experience a jump in sales, but those jumps in sales, along with the credit for those sales, belongs to the buyer and not the seller.

Seller's or brokers who bump up the price of the business based on the premise that "the business has so much potential" are simply taking credit where none is due!

Your business is worth only what it is producing today in terms of excess earnings, plus a modest value placed on the equipment package. The fact that it isn't producing sales or profits at a higher rate is simply the reality of the current situation, and it is the current situation that must be used in the valuation process.

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