What is a value gap?
A value gap is the difference between what a seller thinks his/her business is worth and what the actual value of that business is in the marketplace.
What is an example of a value gap?
As a business owner, let’s say you want to sell your company for $3 million. This figure is what you think your business is worth. Let’s say your potential buyer only thinks your business is worth $2 million. The difference between the two figures is known as a valuation gap, or value gap, which has derailed many deals.
Why is a value gap important for business exit planning?
It is important for business exit planning because it can affect the attractiveness and profitability of the business to potential buyers.
How do you determine how to fill my value gaps?
There are many tools and experts available to determine how to fill value gaps. You can hire a facilitator or an expert to help you complete a strengths, weaknesses, opportunities, and threats (SWOT) analysis, which can also be useful in identifying value gaps. Specifically, you would focus on identifying weaknesses and opportunities to make your business more valuable, as well as threats to the success of your business. Other tools to perform gap analysis include McKinsey 7S and Fishbone. These tools can help you find deficiencies in your business and the effects caused by the value gaps. The goal is to fill the gaps before you offer the business for sale.
How do you bridge a valuation gap?
As stated above, you can use the tools from business exit planners and consultants to help you assess the value of your business and the areas where you can improve it. Depending on the type of business, you may have different value gaps to address.
- If you have a product company, you may need to work on your product positioning, marketing, or manufacturing.
- If you have a services company, you may need to improve your customer satisfaction, diversification, or retention.
What are some value-added strengths that buyers look for in a business?
- A strong management team that can run the business successfully after the transaction
- A loyal and diverse customer base that provides recurring and stable revenue
- A competitive advantage that sets the business apart from its rivals
- A scalable and efficient operation that can grow with minimal costs
- A clear and compelling vision that aligns with the buyer’s goals
How can I increase the value of my small business?
- Have well-documented internal processes and systems that show how efficiently and consistently your business operates.
- Hire and retain loyal and productive employees who are motivated by both financial and non-financial incentives.
- Obtain excellent customer reviews and feedback that demonstrate high customer satisfaction and loyalty.
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