Jack has been working for himself since the day he graduated from high school. His summer gig of mowing lawns for his neighbors grew into a landscaping company.
Fast forward forty years. Jack’s Lawn Service started getting so many customers that he had to hire on a team. Now, he leaves the administrative side of things to his office manager, and a dozen of Jack's trucks drive around town.
Jack has loved the journey of growing his business, but he’s getting older now and he is ready to think about retirement. Jack has given his blood, sweat, and tears for his business, and he has sacrificed more time with his family than he would like to admit. Finally, Jack believes he can cash in on all his hard work. He lists his business for $1 million. After weeks go by without as much as a single call, Jack finally gets some interest...
...from a buyer who wants to buy his business for $300,000. Less than a third of what he listed his business for. The investor says his offer is fair because it is a 2X multiple on the $150,000 of annual profit Jack makes.
Jack hangs up the phone because he’s disgusted by the low offer. So many business owners find themselves in this unfortunate situation. After growing their business, business owners (who become sellers) don’t truly know how to value their business.
Can you see parts of yourself in Jack’s story?
Understanding business valuations prevent these situations from happening and protects the interests of both the buyer and seller.