At an initial meeting, a small business owner will usually ask a business broker what he or she thinks their business will sell for. The business broker usually explains that a review of tax returns, financial information, assets to be sold, etc. will be necessary before a range of pricing can be suggested.
Some Sellers have an idea about what they feel their small business is worth. Many Sellers have absolutely no idea. Some have an ill conceived price in their mind based on what they want or need financially to exit or retire. Of course we all know that the amount they desire usually has absolutely nothing to do with the appropriate business value.
A professional valuator or business broker/ intermediary will factor in all the important ingredients to develop the value of the business. Business Brokers are familiar with financial analysis, have access to comparable business statistics and sales, are well versed with the current market conditions and can carefully establish a range of sale prices to expect.
The selling price of a business is of course important, but many times the actual Deal Structure is the most important factor when selling. Receipt of funds, Seller financing, earn out scenarios, stability of new Owner, tax issues and many other factors must be considered for the ultimate transactional price.
Too many Buyers make the mistake of being overly concerned about the full price when the terms of the sale can make the difference between success and failure. If you could buy a business that would provide you with more net profit than you thought possible even after subtracting your debt service, and you could purchase the business with a small down payment, would you really care what the full price of the business was?
In summary, when selling your business make sure that you reach out to the appropriate professional advisor to zero on the proper pricing for your business offering. With the appropriate asking price you will establish credibility and be able to attract serious, qualified Buyers.
PUBLISHED IN THE SOUTHCOAST BUSINESS BULLETIN – JANUARY 2014