Selling Your Business

Don't sell your business until you've had it appraised.

Would you sell your house without first knowing what it is worth? Of course not! Otherwise you risk asking too little (and leaving lots of money on the table) or too much (and scaring off potential buyers). That is why sellers always get an appraisal before putting their homes up for sale.

For exactly the same reasons you should never sell a business or professional practice without first having it appraised.

"But I know what my business is worth", you may say. Every owner we've ever worked with has a "guesstimate" what his or her business is worth; those guesstimates are almost always based on a rule-of-thumb. The most important thing to know is that rules-of-thumb are always wrong . Consider this fairly typical statement taken from the website of a law firm:

"A good rule-of-thumb is that a health care practice is worth anywhere from one to four times its net earnings. A practice netting $300,000 after expenses might be worth anywhere from $300,000 to $1.2 million."

$300,000 to $1.2 million is quite a range! Should I list my business for $300,000 (but if it is worth $1.2 million I will be leaving a lot of money on the table)? Or should I list it for $1.2 millon (but if it is worth $300,000 I will scare away my prospects)? Rules-of-thumb are not the answer. A good valuation done by an experienced professional is.