Overvaluation is a perennial problem of selling a business.
Andrew Rogerson, a business broker who is experienced in valuation and has operated and sold his own businesses, encapsulates the problem perfectly: “People think ‘I’ve been working on this for 20 years so it must be worth a lot of money’ – but it’s really about the cash flow of the business. That comes as a shock to many business owners; they put their heart and soul into the business and think it’s worth a lot of money.”
It’s difficult to be impartial about something you’ve created, which you’ve spent years of hard work building and which to an extent defines you.
“It’s very common for sellers to have this expectation, especially if they’ve been working in the business over a long period of time,” continues Rogerson, owner and managing director of Sacramento Murphy Business and Financial Corporation Office.
Don Glossop, managing director of Andon Frères, also says that brokers can reluctantly collude in valuing a business too highly so as to avoid alienating potential customers. "It's fair to say that most vendors tend to overvalue their businesses and unfortunately, some brokers overvalue businesses because that's what the vendor wants to hear and to improve their prospects of securing the business.”
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