Your Stock Doesn’t Know You Own It

Peter Lynch in his book One Up On Wall Street, once said “a stock does not know you own it.” It sounds silly, but many people believe that good things happen to good people and since they are good spouses, parents, mentors, employees and can mix a great martini that the stocks they buy will always go up.

Stock value has everything to do with the company, and nothing to do with you.

Small businesses are similar. Sure it might be your name on the door like Bob’s Garage, but the value is derived from the company value, with a little left over for personal Goodwill. But remember if too much of the company is tied to the persona of the owner, it is worth less to a perspective Buyer who replaces you. Colonel Sanders might be an exception where his persona kept on after he sold KFC, but that gets into a whole different topic of branding.

I recently had a meeting with a business owner who I had put a market value on his business of just under $2 million. Nice business, had some of his adult children involved in the daily operation, but the truth is that he was the innovative and driving force in the business and as he approached retirement age, that drive as slowing down. So were sales and profits. Very typical in the life cycle of a business. The key is to recognize this early and sell the business to someone who will invigorate the business before the business starts to slide. Better to rise up a business from flat sales than to try to right a sinking ship.

After presenting my analysis of the market price I asked the owner what he thought the business was worth. He stated $5 million! Checking to see if I missed something I inquired as to how he got to that figure. The answer was $2 million for my wife and I and $1 million for each of our three children. Hard to counter logic like that, even though I tried. We never did come to terms on a listing price.

The sad truth is that today I could sell the company for $2 million and have a steady pool of Buyers looking for a business like this, but if he holds on to the business for a couple more years and the slide continues, we will be selling it for far less, if we can sell it at all.

Remember, a business doesn’t know you own it…….or how many children you have.

Dave Roeser