When a deal sounds too good to be true, it probably is - Richard Rasmussen

Of late I’ve seen a lot of printing businesses dramatically over valued by a number of different parties; from business brokers promising to deliver overseas buyers who will pay top dollar, to accountants relying on out of date multiples and written-down values of machinery, to business valuers who have no clue what the equipment is worth, and rely purely on accounting formulas.

A friend of mine runs a successful car auction business. He buys cars from dealers and resells, via auction, to other dealers. When he provides a buy price he does so, willing and able to buy at that price. Frequently when sellers think he has offered too low a price, they refer him to the Glasses Guide, often saying....”but the Glasses Guide says the car is worth $X”, he responds, “Yes, but the Glasses Guide does not have a cheque book”.
Meaning the Glasses Guide only provides estimated values, it does not buy cars.

So with business appraisals, it’s not so much what the business is appraised for, but what it actually sells for. And the only reliable way to properly appraise a business is on market evidence – what like style businesses have sold for.
In our industry at the moment there are some that dramatically overestimate the values of businesses, giving the business proprietors false hope, and in some circumstances as you will read below, leaving them substantially out of pocket, with no result.
In all of the real life examples below, the appraiser has not used the most reliable business appraisal method, “market evidence”.

Perhaps the most prevalent “over valuations” come from companies with these groups:

1. Business Brokers saying “we’ve got overseas buyers wanting to get into Australian printing businesses, willing to pay top dollar”. Here they provide a high value to get the listing and then take over $6,000 plus to advertise the business, frequently in their own business sales magazines. I’ve actually found one such broker that appraised the business at 10 times what I did. I said to the vendor, to get them to buy the business for 5 times what I appraised it at, and then they can re sell it, and pocket a very big commission. One has to question if they are in the publication business or the business sales business?
I’m not saying there is not a market of overseas buyers. There is. But they don’t generally buy complex businesses like commercial printers. Fish and Chip shops, tattslotto agencies, and post offices – yes, but not printing businesses, where you need to market, quote, manufacture, sell and service clients. In my eight years appraising and selling printing businesses I’ve only one printing business sold using this method, and they went broke in six months.
Put the shoe on the other foot, would you buy a printing business in a non Englishing speaking country for over well over market value, when your background is not in print? What would you put your chance of success to be?
A variation on the “overseas buyer” is where an agent, acting for an overseas business buyer, actually makes an acceptable offer on the business. The sting comes when the vendor needs to prepare the sales contracts in Mandarin. So we assume from there the overseas buyer uses this contract as a means to emigrate. No money changes hands with the vendor, but the vendor is out of pocket with the cost to prepare the contracts.

2. Accountants – I don’t want to tar them all with the same brush, because some are very good and know how to appraise a business correctly, but many can be way out on what they think your business is worth. A recent example is where I appraised a business at $1,000,000 and the accountant appraised it at $2,000,000. When I asked how they arrived at the value they said it was based on a multiple of profit, written down values of machines and years in the industry. One machine I thought was worth $200,000, they had it at $500,000 (in the books).
The issue here is that they are frequently a trusted advisor. They have been doing the books for the business for year, but they have never sold a printing business, or know what the market is currently paying for printing businesses.

3. Business Valuers. There are some around that make a business out of providing these services. They’ve never actually marketed a business. They don’t know what they sell for and they use accounting formulas to calculate out values. Here I’ve appraised a printing business at $X and they valued it at 1.5 times X. The business still sits on the market.

Some may point out that I have a vested interest in describing the above issues with the competition. And yes I have, business appraisals are a part of my service offering. My claim is that I know the market, machine values and goodwill values, and base my appraisals on market evidence and market realities.

The litmus test is, if you were not selling, but rather buying, what would you pay for a business around the corner, that looks exactly like yours does? What have you seen in the market place happen to the value of machines or the loyalty of print buyers, because both have a major impact on business values.
So if you want an inflated business appraisal, don’t ring me. And if you have had your business appraised by someone else, and the appraised value sounds too good to be true, it probably is. Caveat Emptor.

Ascent Partners are the industry specialists, providing “market reality” business appraisal and business sales services throughout Australia– Contact Richard Rasmussen on 0402 021 101 or visit our web site at www.ascentpartners.com.au