25 Jan Reconciling Value with “Offer for Purchase”
An offer for purchase says almost nothing about the value of a business. Why? Because “value” (as in market value) is the price a buyer is willing AND ABLE to pay. An offer, by its very nature, cannot speak to ABILITY to pay. I see MANY business owners get confused about this issue. They get a big offer— often just a verbal— from someone and they take it as what the business is worth. Then, when they want to sell, they waste countless amounts of time, money and credibility trying to get this number.
This issue also comes into play when a business owner who is selling out receives multiple offers. What should he do, just accept the highest priced offer? The combo of price and terms? Well, if your time has little value to you, you’d feel just fine about simply taking the highest offer. But if you DO value your time or have a date certain by which you may want to close a transaction, “ability to pay” becomes a critical factor.
More food for thought? Consider the business seller who was offered $4 million all cash for his business and, in the end, the buyer was unable to get the deal done. What is the business worth? Is it worth $4 million? Depends!