Nurturing An Unrealistic Value for your eCommerce business

Nurturing An Unrealistic Value

Many of us can still hear the admonition of our parents, “You’ve got to learn the value of a dollar.” From our first piggy bank to our current savings and investment plans, we have been faced with the value of our hard earned dollars.

What happened when you started your business? Every dollar you invested was stretched to make it produce as many more as possible. You learned the value of a good product, reliable employees, and faithful customers. Your customers have come to expect quality from you, and they are willing to pay for it. You keep them by meeting or exceeding their expectations. The same thing holds true for your employees. They expect fair wages and comfortable working conditions. In return, they provide you with the human capital to run your business smoothly and when they exceed your expectations, you reward them generously. As these finely tuned gears run smoothly together, your business continuously churns out greater expectations, quality, and value.

Value is what you have been striving for all along. Your business has finally reached peak production and you are ready to sell. It is time for all those years of dedication and hard work to pay off. Your business is so lucrative you are sure of its potential value. Or are you? Your knowledge of your business’s value can greatly affect the sale of your business. Having unrealistic expectations can lead to disaster and financial ruin.

The Damage of an Unrealistic Value

Selling a business differs greatly from selling a home. However, there are similarities. A friend recounted the following story over dinner recently:

Ellen and James loved their home. They spent years customizing it to fit their dreams. From the hand-laid wooden floors, family theatre, and custom bookshelves to the exquisite landscaping, in-ground pool, and lighted grounds they had done everything to improve every aesthetic detail.

Then James’ company moved to a more strategic location. To maintain their lifestyle they would have to follow the company. Ellen and James stayed up nights making calculations. Their biggest concern was the value of their home. They counted every penny they had poured into it and came to what they felt was a fair price. James negotiated with a realtor and set the price. Though duly warned about the market and appraisal value of the house, the couple felt their home would sell itself to the right family. The right family came. They were hunting for a house and decided to check out an overlooked neighborhood. The “For Sale” sign caught their attention and Ellen and James were overjoyed at the prospect of selling the house so quickly. This new couple loved the house as much as its owners. However, the price was beyond their budget. Their offer was 20% lower than the owners’ expectations. Ellen and James roundly refused their offer and showed them the door. Months passed and a few stragglers came to look at the house. None of them had the same tastes as Ellen and James. All the possible buyers viewed the house in terms of what needed changing, and consequently, each offer was lower than the first. The owners had refused contact information from the first buyers.
Today James and Ellen have two mortgages. Moving day came and went. The house is still for sale below market price. Hindsight is always 20/20.

Having an unrealistic value of your business can be very damaging to your business, your credibility, and the selling process.

Regretting Your Decisions

Your business may be attractive and have wonderful selling points. The beauty of the thing may draw a crowd. However, once that crowd hears your unrealistic price you will not even have time to explain why you think it is realistic. Your dream price will have driven your buyers away.

Everybody loves a bargain. Regardless of the vending venue, a crowd draws a crowd. What draws the initial crowd? A bargain. Have you ever heard someone yell “Hey Joe, come over here. This guy is selling at 10% over value”? No. Why? Nobody wants to be taken for a ride. No matter how many buyers you accumulate, they will soon disperse as they discover your unrealistic value. As if the unrealistic price has not done enough damage, the scoffers will come. Yes, your competition will be right there to take advantage of the situation. They will tell everyone that you are too big for your britches. What makes your business so special you think you can ask above market price? If the cost of your business is not fair, maybe the cost of your services and products also is not fair. Your integrity will come into question. You may say, “Nobody knows the value of my business like I do.” A more accurate statement might be that nobody knows the sweat, worry, and toil that you have invested in your business. No one understands this better than the artist or craftsman. A painting may take weeks to complete, while a machine can replicate it and produce copies in minutes. Are you willing to pay a few thousand dollars to compensate the artist? Or will you take a print for 100 bucks? Value is not a set standard but instead is measured through the eye of the buyer. The eye of the buyer is often set pretty low, and without solidly documented backup you are sure to find yourself in a pickle.
How long has your business been on the market? Since items of value and bargains are readily snatched up, why has your business not sold yet? Your unrealistic value is driving your true value down by prolonged market exposure. When you see a “For Sale” sign on an item week after week, you begin to wonder what is wrong with the item or you automatically decide the owner is asking too much for it. Either way, you have been dissuaded from even stopping to look at the item and a purchase is out of the question.

However, if an item is available for only a short amount of time, you feel you missed out on a deal and you do not intend to let that happen again. The next time something becomes available in that location, you will surely stop to check it out. A shop owner whose merchandise moves quickly has a reputation for quality goods, bargain prices, or both. What type of reputation are you garnering with an unrealistic business value?

Now that you have chased off most of the buyers, what about the ones who still show an interest? They have taken your word that your business is worthy of their investigation and they begin the due diligence process. They spend hours poring over your financial reports and files.

They inevitably come to realize your business is not worth the investment risk they are willing to take at such an unrealistic price. They have wasted time and money in an investigation process, which will not bring a profit, and you can believe you are not on their list of favorite people. Your lack of supporting information makes you look foolish or worse yet, like a swindler. Suppose an interested buyer was willing to overlook all your mistakes in setting an unrealistic value on your business. Suppose this buyer ignored all the glaring peculiarities being heaped upon your business by your unrealistic expectations, and made you an offer considerably lower than what you are asking. Would you accept or decline? What is your current vision?

Setting a Clear Vision

It should be clear by now that the damages of having an unrealistic value of your business can be staggering. However, knowing the market value of your business is a wonderful bargaining tool and one that you would do well to obtain.

Negotiating with a reasonable value draws your buyer closer to your side of the bargaining table, and in some instances, it can completely disarm your buyer. If he is reasonable and your value is accurate, your buyer will know that you have done your homework and also that he is dealing with a serious seller. The buyer will relax and as the tension eases, you can close a deal with both parties satisfied.

How do you pin down this elusive market value? Where do you find that solid documentation so dire to selling success? It seems apparent that an appraisal is necessary, but how do you obtain one? How do you know it will work in your favor?

You can choose to do it yourself and spend precious time trying to figure the value of your business. You can pull out scads of records and use rolls of tape on your adding machine. You can pore over market reports and comparisons. You can purchase software and try to input the proper figures into the proper boxes, only to find you are in no better shape than a wild guess would have gotten you.
You might decide how much you need for whatever reason you are selling your business and use this figure as a measuring stick. You might believe a fast quarter is better than a slow dollar and you might lower your price as necessary to get “out from under.” You will definitely be out from under – out from under a nice profit.

Crystal Clear Vision

You may hire the services of a competent business intermediary or business broker who specializes in your industry. Hiring business intermediary is like inviting a partner to join you in an endeavor. It is in the broker’s best interest to provide you with the most realistic value possible and to negotiate the best possible deal since a large portion of his compensation depends on the deal closing at the highest possible value. Your new partner has methods of clarifying figures, reports, and intangible property in ways you could never have imagined.

I am not saying all ecommerce business transactions are broker assisted. Generally speaking, unless you have a background or experience selling business, selling your own business while at the same time trying to grow it during the time it is for sale is a daunting task and should not be underestimated.

The simple fact that you have hired business broker increases the value of your business. Prospective buyers will understand they are not the only party at the negotiating table. The presence of a broker elevates the discussion because he has personally set the stage for the sale of your business. Having a reasonable expectation increases your chances of obtaining your asking price and if you have a high yet realistic value with documentation to back it up, it is many times better. You will find that having a realistic value is half the negotiating battle.
No matter what type of business or managing style you possess, remember the importance of a realistic business value. Increase your vision rating before buyers converge upon your company and not afterwards. Meet their gaze head-on with 20/20 vision.

Manish Shah
Manish Shah
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