Sold my service business last year for $1.2M, after being told by two different brokers it was worth $2.5M+. Buyer's lender did a real valuation and I ate the difference. The worst part? I believed the hype and turned down a $1.1M offer six months earlier because I thought it was insulting. Took me a while to realize the "hype" was coming from people who get paid whether or not I sell. Anyway, lessons learned. Curious if anyone else has been through this.
Valuation
What my overvalued business taught me about the real world
Ouch. That's a brutal way to find out. But honestly, the fact that you actually closed is more than a lot of people manage.
Brokers who pump up valuations are a tale as old as time. I had one tell me my coffee shop was worth 4x earnings before he even saw my books. I asked what discount he was applying for the fact I'm in a leased building with 18 months left. Crickets.
Not to be that guy, but did you do any kind of third-party appraisal before you turned down the $1.1M? You can't really blame the brokers for being optimistic if you never got a second opinion that wasn't also from someone in the deal.
Fair question. I didn't get an independent appraisal. I got a valuation from a guy my broker recommended. Yeah, I see it now.
This is the real lesson though. Anyone in the deal has an incentive that isn't yours. Lenders, brokers, even the guy who 'just wants to help you out' with a valuation.
My old boss did this. Skipped a $900k offer, held out for $1.5M because a broker told him what he wanted to hear. Two years later he sold for $600k and lost his best employees in the interim. The valuation was the least of his problems.
That That's the part people miss. The business doesn't just sit there staying the same while you wait for a 'better' offer.
Ha, exactly. The business is a melting ice cube. You can't negotiate with physics.
Slightly off topic but what kind of service business? Just trying to understand the multiple gap. 2.5M vs 1.2M is huge.
Staffing and placement. Most of the revenue was from a handful of clients. In my head the recurring work was 'stable revenue'. The buyer's lender saw 'concentration risk'.
And that's exactly why brokers use a simple multiple range instead of actually analyzing risk. Client concentration alone can knock off 30% of the value to a serious buyer.
The real world of small business sales: the first offer is usually the best one, and the guy telling you it's worth double is not the guy writing the chekc.
Looking back, the $1.1M offer was from a buyer who actually understood the business. He walked when I said no. I don't know if that bridge is burned but I think about it a lot. Anyway, someone asked about the buyer's lender valuation earlier. It took six weeks and cost me about $8k. Worth every penny. Should have done it before listing.