The real value of your business is what you can get for your business. The trick is being able to command what you want for your business instead of taking what you must take for your business. This value demands discipline not to be in a position of having to sell your business because you have to but because you want to at a price acceptable to you. As you know, market value is defined as the price that a willing buyer would offer, and a willing seller would accept without any duress. What many have not taken into consideration is the definition of the real price. While most of us see this price as a dollar amount that we are willing to accept, defining what that price includes is what we will try to explain.
Consideration can take several forms, the first being the tangible consideration received, and the second being the intangible consideration (better known as a psychological consideration) that is necessary for both parties to have peace of mind that full consideration has been given and received.
Tangible consideration can take different forms including the current monetary consideration, exchange of like property, or other tangible property that two parties have agreed to have like value.
Intangible consideration occurs when the buyer and the seller recognize the value of the customer relationships, employee relationships and the culture by which a business delivers solutions to the needs of customers.
You realize cash is king and the standard by which success is measured, but cash is also a tool along with other tangible assets including capital assets and inventory which are utilized to provide the solutions to customers’ needs and does not always capture the total value of your business. While most are happy to receive a fat payout for growing and grooming their business, there is a psychological payout when you make sure that your customers and employees are taken care of when the business transitions to a new owner. While it may not always be possible for a business owner to require a new owner to retain all of the current employees, you will likely want to provide a level of assurance to customers and employees of a smooth transition.
So this leads us to the real value of your business. There is no way to place a calculated value on a business investment without considering both tangible and intangible value. You can only measure this value when you know you have positioned the company to be saleable with the current people and processes in place, and you and the new buyer see this value.
Remember, sometimes value is more than money.