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7 Deadly Sins of Business Valuation
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7 Deadly Sins Of Business Valuation.

7 Deadly Sins Of Business Valuation.
Before you value your Business consider the 7 deadly Sins of Business Valuation

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7 Deadly Sins of Business Valuation Presentation Transcript

  • 1. The  Seven  Deadly  Sins  of  Business  Valua4on…PrideGreedFallacyHistoriaEgoHopeBlameTuesday, 25 June 13
  • 2.   1.  PRIDE   You  think  your  business  is  worth  a  lot  of  money  because  you  have  had  it  for  20  years.  Unfortunately  it  doesnt  ma<er  how  long  youve  run  your  business.  Its  the  value  proposi@on  that  youre  offering  to  the  buyer  that  ma<ers.  You  could  have  a  business  that  you  ran  for  20  years  and  it  could  be  worth  nothing  or  you  could  have  just  started  up  a  business  and  it  could  be  worth  millions.  Business  owners  think  that  because  they  put  20  years  into  their  business  they  deserve  to  be  rewarded.  No  one  cares  how  long  youve  been  in  the  business  Tuesday, 25 June 13
  • 3.   2.  GREED   You  think  your  business  is  worth  the  amount  of  money  you  need  to  re@re.  The  problem  is  that  it  does  not  ma<er  at  all  to  the  buyer  what  you  need  to  re@re.  The  buyer  only  wants  to  inves@gate  what  future  maintainable  earnings  are  there  for  him  or  her,  or  what  value  there  is  in  the  assets.  Otherwise  your  business  is  worth  far  less  than  your  expecta@on  .Tuesday, 25 June 13
  • 4.   3.  FALLACY   Accountants  and  business  owners  alike  apply  the  wrong  mul@ple  to  the  wrong  profit  figure.  There  are  generally  accepted  ranges  of  mul@ples  that  are  applied  to  par@cular  profit  classes.  One  such  mul@ple,  called  an  EBIT  mul@ple  will  be  smaller  than  another  class  called  EBITDA  for  the  same  business.  (Refer  to  our  website  glossary  of  terms  for  what  these  acronyms  mean)  Hence  you  would  need  to  apply  a  smaller  mul@ple  to  an  EBIT  than  to  an  EBITDA.  You  would  be  surprised  to  learn  how  many  so-­‐called  experts  apply  the  wrong  mul@ple  to  the  profit  figure.  Tuesday, 25 June 13
  • 5.   4.  HISTORIA        This  is  the  sin  of  looking  to  history  when  looking  for  the  profit  figure.  History  and  past  events  are  relevant  but  are  only  as  a  guide.  Many  people  look  to  the  most  recent  tax  return  or  a  three  years  average  as  though  it  was  the  only  profit  marker.  A  buyer  is  only  interested  in  next  year’s  profit.  Work  on  that  one  and  leave  last  year’s  as  a  guide  only.Tuesday, 25 June 13
  • 6.   5.  EGO   Business  owners  think  their  business  is  worth  the  same  to  a  buyer  as  it  is  to  them.  They  think  of  themselves  and  not  the  buyer.  The  mistake  they  making  here  is  not  taking  into  account  the  risk  of  the  transac@on.  The  risk  of  the  transac@on  can  be  the  risk  of  losing  10%  of  the  clients  or  90%  of  the  clients,  depending  on  the  rela@onship  that  the  business  owner  has  with  the  clients.  There  are  many  other  risks  of  the  transac@on  including  loss  of  key  staff,  degrading  of  rela@onships  with  key  suppliers  and  other  risks  inherent  in  a  new  boss  moving  into  the  Managing  Directors  office.  The  key  is  to  take  steps  to  remove  the  risk  from  the  transac@on.  Tuesday, 25 June 13
  • 7.   6.  HOPE        As  opposed  to  Historia,  which  is  obsession  with  the  past,  Hope  is  the  opposite.  It  is  empty  belief.  “I  hope  my  business  is  going  to  improve.”  “I  hope  my  business  will  be  worth  a  lot  of  money.”  “I  hope  someone  will  buy  it”  Sorry,  it  will  only  improve  in  profit  and  value  and  sell  for  good  money  if  you  make  it  happen.  Op@mism  is  a  great  way  to  live.  Hope  is  just  despera@on.Tuesday, 25 June 13
  • 8.   7.  BLAME     Business  owners  like  to  blame  others  for  the  state  of  their  business.  “My  business  is  worth  a  million  dollars  and  if  its  not  it’s  the  fault  of  the  government,  the  economy,  my  opposi@on,  the  internet,  Google,  interest  rates,  the  high  dollar,  the  low  dollar,  consumer  confidence,  business  confidence...”  anything  that  lets  them  off  the  hook.  Blame  excuses  ac@on.  No  ac@on  means  that  the  business  will  never  grow  in  value.Tuesday, 25 June 13
  • 9. If  You  Want  To  Maximise  Your  Business  Visit:9www.bc.com.au/maximise.htmlTuesday, 25 June 13
  • 10. For  Advice  On  Business  Valua@on:  10BCI  Business  BrokersTony  Arena  (Managing  Director)3/1  Alexander  Street,  Crows  Nest,  NSW,  2065Phone:  +61  2  94393399Mobile:  +61  411888148Email:  trena@bc.com.auTuesday, 25 June 13
  • 11. For  More  Informa4on  On  Business  Valua4on  Visit  Our  Website:11www.valueabusiness.com.auTuesday, 25 June 13