(lively music) – Hi. Peter Boolkah here. And welcome to today’s
edition of The Transition Guy where I’m going to be looking at the topic on company valuation. So company valuation is
quite a contentious issue. Why? Because most people
overvalue their business. And really, they base their valuation on how hard they have worked, how many hours they have worked and how many years they’ve managed to successfully repeat that
mind numbingly, boring routine. For some reason, they think that we have to pay for effort and hard work when we buy someone’s business. Now maybe 30 years ago, people would have been
really that gullible and say, “Yes. You know what?
I’ll pay you that money.” But these days, people are far more savvy, and the reality is people no
longer want to buy your job. So how do you know you’ve got a job? Well, firstly, think about do you really think you have a business? Now the majority of businesses out there that I’ve come across are looking to be sold are people that predominantly in their 50s and 60s. So they’re probably been at it for, say, 20, 30 years. They’re getting a bit tired. They want to live in, say,
different area of life. And actually, they want some money back because they don’t want to
keep working at the pace and ferociousness that they have done for, say, 20 old years. The question is really at 50 and 60, some people are blessed with impeccable health, because they’ve made all the right choices and have taken care of themselves, and others are not. Now what would happen
to you and your business if you had to be taking out your business for four months due to ill health. That’s very common, especially when you start
to get to your 50s and 60s. You just don’t know
what’s going to happen, and you’re taking out the business. Now, what I mean taking out the business, I mean, you can’t communicate
with them via phone and you can’t communicate via e-mail. So you’ve got to let the
business run by itself. Can the business survive and grow without you? Now there’ll be businesses
out there that can. But for the majority, because they’re the
biggest cog in the business and also proverbial hamster
in the hamster wheel, most people cannot. And you can imagine if your business cannot survive
four months without you, what chance do you have of selling it? The reality is you’re selling your job. Now there are going to be some gullible
people out there that say, “Okay. I will buy your job.” And that’s fair enough. You’ll probably get what you want for it, but as quite as rare as rocking horse poo, to be truthful with you, the reality is there’s… that doesn’t really happen. And most businesses, for an investor, they’re bought at much
lower market valuation than most people would like. Really, for investors, most businesses are sale. Why most businesses are sale? Because the business owner themselves are the limiting factor in the business. So what do you have? What do business owners do? Well, the majority of them
exchange time for money, which means without the
business owner in there, either you have to do the job or you put somebody else in. So you’re really buying a job. Very few businesses out there are actually
properly structured. So they don’t have the right team. They don’t have the right
management structure in place. Most of the time, they don’t have an executive
structure in place, therefore, the business never
realizes its full potential. And thirdly, the biggest thing I’ve come across is actually most businesses are poorly structured in terms of capital. They are under capitalized. So what do we mean by that? Well, Jim Collins has
made a really good point when he asked the question, “Is the job of the company
to serve the family or is it the job of the
family to serve the business?” Well, most people see the
business as a cash machine, and they strip out the business as much money as they can. A lot of entrepreneurs, I think, well, I don’t want to pay tax, so I’m not going to declare profits, et cetera, blah, blah, blah, make it look as little as possible, enjoy the benefits of their cash, and then when they come
to sell the business, when they want to sell the business, some profits just are not there. And because the money is never
retained in the business, the money is not there
to grow the business. So as an investor, you come in and you’re thinking “Okay, well, I can see the
potential in three areas. It’s not worth what the
business owner wants.” Nine times out of ten, the owners are quite
desperate to sell anyway, so you start really high, you end up quite low. Guess who makes all the bargains? Guess who makes all the money? It’s going to be the investor. Because they know exactly
what they’re looking for. See, as a business owner,
let me ask you this. When you started your business, did you actually ask
yourself the question, where do I want to be in 20 years’ time? What do I want my business to look like? Who am I going to sell it for? The answer quite frankly is no. So it’s like the end of jigsaw
puzzle without any picture. You don’t know what
you’re putting together. You don’t know what your building. You’re just going with the flow. So if you don’t want to sell your business and you’re happy being the
hamster in the hamster wheel, carry on doing what you are doing. However, if you are
serious about thinking, yes, maybe this time it needs to change. I would love to sell my business. Head over to boolkah.com and get in touch. And remember, your business
isn’t going to sell itself. You need to be the change. You need to make the change. And failing to learn is learning to fail. (enthusiastic music)