Quick Consultant: The Peril of Unrealistic Expectations for Business Valuations

Obviously, if you have convinced yourself that $450,000 is a fair asking price, then any offer of $300,000 or less, no matter how thoughtful or justified it might be, would still be interpreted as an insult. So Dave’s reaction wasn’t a big surprise.

The ongoing problem is Dave’s inability to financially justify and explain why he thinks his asking price is reasonable. When asked to explain how a potential buyer could pay himself/herself a salary and have enough money left over to make the payments to Dave over a three to five year period of time, he just shrugs it off. “Not my problem. I did it, so should a new buyer.”

Apparently, Dave, like so many others, thinks that a buyer should not necessarily expect to withdraw a reasonable salary as a working owner while paying off the business. Well, I'm sorry, Dave, that just doesn’t compute, at least not for intelligent buyers. Now tell me again how a buyer will buy the business from you?

Still Waiting and Waiting…

Everything I’ve told you so far is absolutely true and based upon a real firm. The ratios and dollar amounts are very close to the real world situation. The only thing I haven’t told you so far is that all of this transpired nine months ago.

Dave did indeed turn down what we considered a legitimate purchase offer. The buyer ended up buying another printing firm in a nearby community. For a while, Dave stopped talking to the broker and was angry at me and his accountant. The original broker was equally upset and he stopped pushing or promoting Dave’s business. Yes, the business is still listed, but to the best of my knowledge, he hasn’t even had a nibble in the past few months.

Worse, with the economy still very soft, and with his growing reluctance to sink anymore money into the business, it looks like sales for Johnson’s Printing & Graphics will drop considerably below the $800,000 mark for 2011—the first time it has done so in 10 years.

Dave and his wife had planned to spend this summer up at their lake cottage, but instead seem to be working harder and harder just to keep sales where they are. Payroll is once again getting harder to make, and they seem to argue more than ever before. It wouldn’t surprise me one bit if a divorce was on the horizon. Businesses will do that to you.

For further information (not a sales pitch) visit www.printshopsforsale.net where you will find a Q&A section dedicated to valuing the typical printing business.

Senior contributing columnist John Stewart is president of Q.P. Consulting. He is co-author of the industry best seller “Print Shop For Sale” (www.printshopsforsale.net). Follow John’s blog on his website at www.quickconsultant.com. Contact him at 2110 S. Dairy Road, West Melbourne, FL 32904, call 321-727-2444, or email qkconsult@aol.com.