A Valuation is a MUST!

The story begins back in 2005 or so – ancient history it seems! – when a call came in from the owner of a small business that wanted to discuss the possibility of selling. The call was passed to me.
It seems the seller, we’ll call him Rob, owned a business that was a cross between a convenience store and an old-time “service station”. It sold a limited array of snacks and drinks, had several fuel pumps, did minor auto repair and sold used tires. It enjoyed high visibility on a state highway, albeit in a rural area. Given that much of the traffic that passed by was traveling to more distant destinations, the business’ product and service offerings would seem to be perfect.
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As is the iron-clad rule in our company, when I met with Rob I told him that we would not take on the assignment without doing a valuation and that such valuation would entail a modest fee.
As is often the case with small business owners, there was some push back on the fee. (At the time – and still, to a certain extent – small business owners related us to real estate agents who
never charge anything(!) for their knowledge and expertise.) We explained that hiring us to do a valuation did not mean he was hiring us to sell his business and that he could use the valuation report that we’d produce if he chose to try to sell it himself. But we weren’t going to proceed with anything until a valuation was done.
After some hemming and hawing, he agreed.
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The Fallout

As I’ve written often in the past, small business owners generally have an exaggerated opinion of the value of their business and Rob proved to be no exception. When I met with him to review the report and explain how we arrived at the number, he began to channel his inner
Claude Rains in the classic 1942 movie
Casablanca who proclaimed to be “..shocked, shocked…” that there was gambling in Rick’s Café, a notorious nightclub and gambling den.
In our case Rob, of course, was “…shocked, shocked…” that his business was worth only about half what he wanted.
We proceeded to sit down and pick the valuation apart.
As I teach in our course, we invite business owners to go through our report line by line, number by number, page by page and point out any errors in calculations, assumptions or justifications. In 20 years of doing this, not once has anyone been able to argue with our conclusions – at least based on fact.
Now, emotion, on the other hand…
To save face, Rob decided to bring up “…the $1000 every week I take out in cash”. (Evidently, buyers of used tires generally pay in cash.) Now, fifty grand a year of “tax-free” revenue is certainly worth something; and in a business transfer, it’s worth a lot more than fifty grand!
It took me a moment to get over this 11th hour disclosure, but I had to tell him that if the cash can’t be proved, why not call it 100 grand? Or 500 grand? It’s just as believable!
He was not amused.
Should We Take The Listing?
We continued back and forth.
I didn’t want to list the business at a price anywhere near what he wanted and he didn’t want to sell it for what it was worth so we finally agreed on a unique approach whereby we would take the listing engagement at his price provided that he cover our costs up front and that, if we got no action in 90 days, we would either drop the price to what we recommend or terminate the listing.
(This approach to creative listing is covered n detail in our course.)
Needless to say, there was zero activity on the listing and, by mutual agreement, we terminated our relationship.
Now, remember, this was back around 2005. George W. Bush and Tony Blair were still the Big Dogs in the two most significant Western powers and Angela Merkel, who it seems to me at this point has been in the news since the dawn of time, had just risen to power in
Deutschland; i.e., the “way back” way back.

Over the years, I would pass by the business in my travels and I noticed an ever-changing string of “for sale” signs belonging to various realtors on the grassy strip between the roadway and the parking area. These signs gradually weathered and deteriorated and, evidently, whenever one of the signs needed to be changed, Rob also changed realtors.
Each of these realtors listed the business on the same local Multiple Listing Service – where no one in the history of civilization has ever gone to find a business to buy – at roughly the same price with, not surprisingly, the same result. When I last drove by – about two weeks ago – I saw that Rob, after 14 years, essentially gave up. He replaced the words “Used Tires – Cheap” on the sign that faces his gas pumps (a captive audience of people heading elsewhere) with “Business for sale. Make offer”.