Coming to terms with a low business valuation

Understanding the true worth of your dealership business is crucial for navigating its growth and future success. However, facing a low valuation can leave many business owners unsure of their next steps

CREDIT: This is an edited version of an article that originally appeared on Forbes

Understanding the true worth of your dealer business is significant. Yet, many find themselves at a standstill when faced with a low valuation, uncertain about the next steps. In this article, we explore what actions to take if your business’s valuation falls short of expectations.

Step one

Firstly, give yourself time to digest the information you’ve received. It’s common for over 90% of small business owners to discover that their business is worth less than they anticipated with their first valuation. While it might feel like your business is faltering, a lower-than-expected valuation presents an opportunity to strategize your business plan and realign your goals based on the new figures.0

Step two

 Now that you’ve assessed your position, it’s crucial to clarify your end goal. Once you have that in mind, you can begin planning the optimal route to reach it. When determining how much you want to sell for, consider calculating two different figures: your ‘walk away’ amount – this is the money you’ll receive from the sale after accounting for taxes and expenses and your ‘ideal amount’ – the minimum amount you need to sustain your specific financial goals.

The disparity between these two figures can often be a stumbling block for SMEs, partly because of cognitive bias, where business owners are emotionally attached to their business. It’s crucial to address both figures objectively and realistically.

Step three

Taking the time to build your knowledge about what makes a business valuable is essential. This includes paying close attention to how other businesses in your industry are valued and what common multipliers are used. Doing so can help owners and managers identify various opportunities to increase the value of the business. If the decision is made to sell, it is vital to have a well-prepared exit plan and explore different pathways to bridge the valuation gap.

Step four

This next step involves assessing the energy and resources you can dedicate to making your business valuable and sellable. This requires analysing both your personal resources and energy levels, as well as those of anyone else involved in making changes. Having sufficient energy, time, and tools to navigate any challenges is crucial. While you may feel ready to sell now, pushing a bit further can significantly increase your business’s worth when you do decide to sell.

It’s crucial to remember that a low valuation isn’t the end; it’s an opportunity for a fresh start. With strategic planning and determination, you’re not just preparing to sell; you’re gearing up to maximise your business value.