This is a story of fair market value and how one business owner almost missed out.

He was a smart business owner, a market leader in the niche he served. He had a good, profitable business in a niche market. It was modest in size with about 15 employees and a normalized EBITDA of $325,000. His business was poised for agressive growth but like 65% of all business owners he did not know the true value of his business.

Then opportunity came knocking in the form of a multibillion dollar corporation.

At an academic value, this business was worth about $1.5 to 2 million, looking just at the numbers. But they approached him, so he was hoping for a premium price. He planned to ask for $7-$8 million and negotiate from there. The key point here, he had no idea what the true value of his company was. Actually, the value could be different for each potential buyer.

That’s when he brought us on board. We analyzed the business and presented an overview that demonstrated all the synergies between the two companies. Then, we refused to suggest a price. This last bit gave our seller some small measure of concern. The corporation had been pretty adamant that he suggest a starting point. We held our line.

The opening bid was $7.5 million. After two more rounds of negotiations we closed the deal at over $10 million.

Now if this were a diet commercial, this is the point where I’d have to say “results not typical.” It is, however, a real example of what can happen when you market without a predetermined asking price on your business.

Our seller wanted to do what a lot of business owners do, set the price and then haggle down to their real goal. If the business languishes on the market, it becomes shopworn. Chances of a successful sale decline.

Then there is the psychological impact of a delayed sale. Once a business is put on the market, many owners start thinking about the future—things like trips with spouse and time with grandkids. The focus is gone, and revenues start to decline, or at best remain steady.

In reality, many businesses sell for close to their academic value. Sometimes much lower. Sometimes much higher. Unfortunately, the number of years you own a business, the amount of hard work you put in, the dollars you need to retire—these things don’t factor into the sale price. What matters most is cash flow, growth story and buyer synergies.

You can have the best specialist in the world determine a price, but until someone is willing to write a check, it’s all hypothetical. The only way to determine fair market value is to package your company in the best possible light, refuse to give a price, and generate multiple offers.

Do that, and you won’t have to lie awake at night wondering if you walked away from thousands of dollars, or maybe even millions.

Scott Bushkie is President of Cornerstone Business Services, a lower-middle market M&A firm with offices throughout the upper Midwest .  Reach him by phone at (920) 436.9890