Pricing a Business should involve more Research than Emotion
Often, sellers want to go to market with a very high price for their businesses, hoping buyers will appreciate what the seller perceives as a great value. Sellers assume that buyers will at least take time to check out the business.
In reality, there are many qualified buyers who won’t even LOOK at a company if they think the price is out of line with economic realities.
Every business has a “reasonable value.” That value may increase if a buyer will gain strategically due to increased revenue and decreased operating expenses by integrating that particular new business into their own. The additional “premium” paid will be based on the value of those synergies the buyer will gain. However, even the additional strategic value is not going to result in a buyer paying an unreasonably high price for the business.
Woe is the seller that expects to find a sucker to buy his/her business for substantially more than it’s actually worth. It just doesn’t work that way.
When selling your business the objective is…?
To sell the business! Plain and simple.
Read article in Small Business Monthly
Launching the business for sale with an unrealistic price will kill the initial enthusiasm and excitement usually created by a new offering. Pricing a business too high changes an opportunity to sell into an agonizing process of disappointment.
Here’s the reality:
After 60-90 days of fielding a few initial inquires, providing additional financial information to sellers, and hearing negative comments about the price of the business, the seller will typically get antsy and want to lower the price.
But think about what has happened during that time period…
any initial interest/excitement has been lost, the seller has gotten anxious, and the buyers have started to wonder:
- Does the seller really want to sell, or are they just fishing for a sucker?
- Did other potential buyers discover something about the business that caused them to pass on the opportunity?
- Why not wait longer for the price to drop more?
All the while, potential buyers who were initially interested may have found other opportunities and left the market entirely.
The listing then drags on and the longer the business stays on the market, the worse it looks for the seller.
And to add insult to injury:
The seller’s growing anxiety prompts him/her to lower the price BELOW the “reasonable” price that should have been the starting point based on a realistic business valuation. If there are still no viable bites, either the price is lowered yet again or the business is taken off the market. The phrase “damaged goods” comes to mind.
Opportunity is lost and a Life Beyond Business™ is postponed.
Pricing a business for sale should be approached scientifically, using valid processes, formulas, and market-based information.
Use metrics to price your business; don’t let emotion get in the way of sound logic. Buyers quickly recognize a “reasonable price” for a business based on the financials. Even sophisticated buyers who expect to negotiate business transactions will walk away without looking at a business priced too high.
Should a business be listed at a higher price to allow room to negotiate?
Usually the answer is yes, within reason; but if the business is priced too high, there may be very few interested prospects and probably no offers.