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Are you Over-valuing your Company? How your Emotional Attachment to your Business May be Hurting your Numbers.
It is never easy to emotionally detach yourself from matters that are very important to you, and your business is no exception. It is akin to evaluating your child as a neutral third party would; realistically, you cannot. And it makes sense why; you have likely invested numerous hours and many resources into your business. And, really, what is the harm in thinking well of your business or of bragging about it?
Generally, there is nothing wrong with playing favorites with your business. However, this favoritism can lead to one major downfall: over-valuing your business. Like the parent who thinks her kid can do no wrong, business owners often overlook the flaws in their own businesses. This becomes a problem at two major times:
1. When the business is not profitable
There are business owners out there who do not have a grasp on how their business is actually doing. We have heard from owners who are struggling to make a profit but do not know what they are doing wrong. This is when wearing rose colored glasses can hurt your business; you are not able to see the true problems. And you cannot fix problems you do not know exist. So, what can you do as a business owner do determine how your business is truly doing?
- Consider hiring outside help; be it from a consultant, CPA, accountant or an attorney.
- Set up a survey to get customers’ opinions on your business.
- Ask your employees for honest feedback about the problems of your business.
- Make sure your accounting books accurately reflect your business operations.
- See what your competition is doing right and see how you compare to that.
- See what your competition is doing wrong and avoid those same pitfalls.
2. When the business owner is ready to sell the business
Playing favorites can also create issues when you are ready to sell your business. This happens when business owners become over-confident in their business and, often, feel their business is worth more than it actually is. Business owners have invested time, money and other resources into their businesses and often evaluate their businesses based on their personal investments and attachments. Quite frankly, a buyer is going to look at the numbers when determining whether to buy your business. The fact that you sold your home to fund the business and missed your nephew’s graduation to meet with an investor is not going to be important to a buyer when valuing your business. So, put emotions aside and place a value on your business that reflects what the business is actually worth.
Taking a step back and viewing your business as how a third party would see it will help you succeed in operating your business and help you when it is time to sell the business. It is hard to be neutral when dealing with areas relating to your business. If you are struggling with being profitable and/or finding a buyer, you may want to consider the possibility that you are over-valuing your business. So, take a step back, hire outside help if need be, and reevaluate your business.
Need help improving the value of your business? Check out this article: http://morganandwestfield.com/blog/50-factors-can-improve-value-your-business
Gabrielle Luoma Bio
Gabrielle Luoma ,CPA, Owner
She is the owner and visionary of GMLCPA firm. She spend most of her time on the more complex parts in the accounting and tax areas for small business. She is also a leader in the industry for NextGen CPA Firms.
In between everything that she do have a wonderful family. They spend lots of weekends at cheer competitions and...