A Business Broker’s take on “Shark Tank” - by Ray Ellen, Owner & Intermediary for CBI Sunbelt

The show, Shark Tank has caught my attention & deservedly so! I have been watching it for a few weeks and the application for small business owners is enormous!

In the show, business owners and entrepreneurs present their business before a panel of “Sharks” - titans of business in multiple industries. The business owner is usually attempting to raise capital for an investment in their company. The Sharks then make a decision whether or not to make an investment in the company and become partners with the business owners.

There comes a time in the life of every small business where they need to sell all or a portion of their interest to raise capital to grow the company or to move on to other interests by selling the company.

If you need to raise capital, you should talk to a “venture capitalist”. However, if you need to sell your business and turn it into an annuity, you need to talk to a “confidential business intermediary” [me!]. Either way, there are valuable lessons to be learned from the show “Shark Tank”. Here is one of them:

Valuation: What is the company worth?

When you watch the show, pay close attention to the “valuations” that the business owners or investors talk about. For instance, one business owner says, “I’d like $200,000 for 10% of the company.” The Sharks will quickly calculate how much money it would take to own 100% of the company. In this example, the business owner would be asking for $2,000,000 for his entire company! That is necessarily unreasonable - it depends. The question & lesson is: How did he determine the value of his company?

This is truly the multi-million dollar question & the most common mistake of business owners. I don’t want to get into the nitty-gritty of business valuations because I don’t want to put you to sleep, but here are two quick tips about Determining your Businesses Value that I have noticed in the show and directly apply to most businesses.

1. The CURRENT Value of your company is not based on FUTURE projections. In the show, business owners will stress the “future” sales & income projections, which has almost ZERO effect on value. (I say almost because there is an economic factor called “demand” which has to be present to have a profitable business, but the factor of demand is still considered a current economic factor vs projected demand.) The majority of your business’s value will be determined by historical cash flow from sales. This is the #1, most important factor: cash flow.
2. Know where the value is in your company. There have been several occasions in the show where the REAL value in the company is not the business itself but in the product or patent that the company or owner owns. In those situations, it is almost always better to sell the patent to a major company already involved in producing products for that industry or partner with them and collect royalties!

This show is full of practical truths and applications for main street businesses and entrepreneurs! Take a look at the episode above and tell me what you think!

Thanks for reading! Please comment!

NOTE & Shameless self promotion: At CBI Sunbelt, to determine the value of a business, we use an independent third party who is a certified business appraiser. We receive a professional report that is approved and accepted by the Small Business Administration, lenders, and venture capitalists. If you have any questions about the value of your business, contact me for a free, no obligation, confidential consultation. (ray@cbiteam.com)