People have a tendency to overvalue things that they own. We are all guilty. But for a business owner, they must ask this question during the business planning process: “What is my company worth?” I see business owners overvalue when it is time to exit or in perpetuation planning. I have heard one say, “I want as much as someone will pay for it.” There was a behavioral study that says people ascribe more value to things because they own them. The valuation of a business can be hard to accept and cause a business owner to hold out. In the long run, that could lower the value because the business could be shrinking. If you did not own it, how much would you pay to purchase it? This is a tough question, especially if the owner has spent most of their life building it. Be proactive to arrive at a valuation so you can involve the right advisory team and create realistic goals. Start planning now so you maximize your investment and have a smooth transition.
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