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One by one people line up to pitch their new idea, the next must-have product, killer app, or revolutionary service. They are hoping to convince one of these 5 investors to "buy in" to the business in exchange for capital (i.e. cash).
Some ideas are brilliant. Other ridiculous. The sharks chew up the ones that stink and invest in the ones that are good. I find the process of analyzing each business venture to be very entertaining.
On Friday a couple was asking for $125,000 for a 10% stake in the business. My mind automatically calculated the value of the business to be $1.25 Million. The next question was how much money did the company generate? Their answer was, "We have sold $4,000 of product in the past year."
What!!! You have got to be kidding me. This couple had valued their business at $1.25 Million based on $4,000 in sales. Not even profit, but sales. The sharks chewed this idea up and sent the couple away with nothing but embarrassment.
I hate to admit it but this scenario is more common then you think. I deal with with unrealistic business owners every day. I wish there was a good way to help business owners understand how much their businesses are worth and how to create value.
It would certainly make my job much easier.
Trevin Rasmussen, CBI
Business Broker
Bristol Group
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