Strategies to Overcome a Low Business Valuation
Obtaining a business valuation is an important step to success whether you are buying, growing, or selling a business. As part of a business valuation, a valuation expert uses proven methods to determine the true value of a company. This information allows you to make strategic decisions to maximize the value of your business. However, it is not uncommon for a business appraisal to come back lower than expected. A low business valuation can be discouraging, but it does not reflect your business’s potential for growth.
This article discusses some effective strategies to overcome a low valuation. By understanding the possible solutions, you can develop an effective strategy to maximize the value of your business and secure a favorable outcome whether you are buying, growing, or selling a business.
As a professional business appraiser, Peak Business Valuation works with thousands of businesses across dozens of industries. We are experienced in addressing low business appraisals. As such, we are happy to provide an accurate business valuation and address any concerns you may have. To get started, schedule a free consultation with Peak Business Valuation below!
How Buyers Can Overcome a Low Business Valuation
One of the most common strategies for buyers to overcome a low valuation is to negotiate the purchase price based on the valuation report. This approach ensures that buyers are paying a fair price for the business. Consider taking the following steps:
- Leverage the Valuation Report: Buyers can use the business valuation report to show why the initial asking price is too high. By presenting the report as evidence, buyers can negotiate from a position of strength.
- Highlight Business Risks: The valuation report identifies specific risks or weaknesses of the business. Buyers can use these factors to justify a lower purchase price.
- Negotiate for Seller Financing: Alternatively, buyers can negotiate for seller financing. This allows the buyer to close the gap between the valuation and the purchase price by making payments over time.
Dealing With a Low Valuation When Growing a Business
Next, if you are preparing to grow a business, a low business valuation is an opportunity to identify areas of improvement and make adjustments. This can help you maximize the value and growth potential of your business. Below are a few options for improving your business after receiving a low business appraisal:
- Enhance Operational Efficiency: Assess your operations to identify areas where you can reduce costs and improve efficiency. Improving operations can lead to higher profitability which increases the overall value of a business.
- Invest in Marketing: Your reputation and brand image play a major role in the value of your business. If your business appraisal comes back low, consider investing in strategic marketing efforts.
- Prioritize Your Customers: Loyal customers add significant value to a business. Focus on providing quality customer service, expanding offerings, and/or implementing loyalty programs to increase customer retention.
- Diversify Revenue Streams: Expanding a business’s revenue streams can reduce risk and boost the fair market value of a business. You may consider expanding your product or service mix, subscription plans, etc… To learn more, see Diversifying Revenue Streams.
At Peak, we regularly work with individuals looking to buy or expand their businesses. We are here to help you with an accurate business appraisal! We can also discuss your questions and concerns about low business valuations. Start now by scheduling your free consultation with Peak Business Valuation!
What Sellers Can Do to Overcome a Low Business Valuation
For sellers, a low valuation often means re-setting a listing price or negotiating alternative financing options with the buyer. In other cases, a low business appraisal may represent a problem with how a business is presented. Sellers can take several steps to address these issues and increase the business’s perceived value.
- Update Financial Documentation: One of the first steps sellers should take is to ensure that all financial records are accurate and up-to-date. Providing business appraisers with updated and accurate documentation could lead to a higher business valuation.
- Highlight Intangible Assets: Many businesses have valuable intangible assets such as brand reputation, customer loyalty, and intellectual property. These assets may not be fully reflected in the valuation. As such, sellers should work with the valuation expert to ensure these assets are properly accounted for in the final valuation report.
- Reassess Addbacks: Sellers should also ensure that all add-backs are accounted for during the business appraisal. Addbacks are one-time expenses or discretionary costs that should be added back to the profit calculation during the valuation process. Some common add-backs include personal expenses, non-recurring costs, and fair owner compensation. For more insights, see Common Add-Backs in Business Valuation.
Conclusion
If you are preparing to buy, grow, or sell a business, a low business valuation can be a stumbling block. However, various strategies can help you overcome a low valuation. With professional guidance, you can take the next steps to maximize the value of your business and achieve a favorable outcome. As such, it is vital to work with a quality and experienced business appraiser.
Peak Business Valuation is a professional business appraiser that values thousands of companies nationwide. We can assist you with a comprehensive business valuation! Additionally, Peak frequently deals with low business appraisals. As such, we can answer any questions you have on overcoming a low valuation. Get started now by scheduling a free consultation with Peak Business Valuation!
