In Greek mythology, the Labyrinth (Greek λαβύρινθος labyrinthos) was an elaborate structure designed and built by the legendary artificer Daedalus for King Minos of Crete at Knossos. Its function was to hold the Minotaur eventually killed by the hero Theseus. Daedalus had so cunningly made the Labyrinth that he could barely escape it after he built it.
In English, the term labyrinth is generally synonymous with maze. As a result of the long history of unicursal representation of the mythological Labyrinth, however, most contemporary scholars and enthusiasts observe a distinction between the two. Maze refers to a complex branching multicursal puzzle with choices of path and direction, while a unicursal labyrinth has only a single path to the center. A labyrinth in this sense has an unambiguous route to the center and back and is not difficult to navigate.
Businesses are mazes!
In terms of business value, many business owners believe that their company is not difficult to navigate, “a direct route to the center” sort of philosophy, which is often why they tend to grossly overstate or understate real (market) value. Having started businesses on my own in the past, I can relate to the amount of courage, time, energy and sacrifice it takes to embark on such uncharted waters, and I can sympathize with (better understand) the concept of extraordinary intrinsic value (value to oneself).
However, no two businesses are alike, even though they may have similar revenues, profitability and industry classification; and, there is no single formula (direct route to center) for valuing them.
Even professional business appraisers have difficulty navigating the maze, which requires detailed financial, operational, economic, industry and market analysis and the application of multiple valuation approaches; to provide a reliable and defensible opinion of value based on reasonable and objective analysis.
Small businesses (say up to $5 million in value) are generally sold with an asking price based on analysis by a business intermediary (broker) or appraiser. The greater the effort to accurately price a business (not taking shortcuts) and the greater the objectivity and expertise of the person doing the analysis, the greater the probability of closing a deal without leaving money on the table.
Bob Altieri, CBA, is a senior business appraiser and broker in Exit Strategies Group, Inc.’s Roseville (Sacrament0) California office. For further information on pricing a business for sale, contact Bob Altieri, CBA.