by Kipp Krukowski
January 03, 2011
Pricing a small business for sale opportunity is something that needs to be carefully considered. Some business owners believe that the best method to maximize their price is to start high and then lower the price if it doesn’t get enough activity. In theory, this sounds like a good idea…because why would you want to sell a business for less money than what someone is willing to pay? However, this is not a good strategy at all when it comes to selling a business.
I like to equate pricing a business for sale opportunity to the “dating scene”. When you are single and looking to find a connection with someone, you may only have one opportunity to impress the “right one”. If you mess up the opportunity to connect with the individual when you have the opportunity, they may never cross your path again and might even connect with someone else.
Picture a situation where a seller offers the business at an inflated price. When buyers are looking on the internet for business for sale opportunities and see that the price is not realistic, they will likely not inquire on the business. Others may inquire but then as they start to review the information, they will realize that the seller is not realistic in their expectations and move on. Some buyers may even go as far as putting in an offer on the business with the hopes that the seller will become more realistic during negotiations, only to become frustrated with the results. In all three of these cases, the “right one” may slip through and not purchase the business.
Fast forwarding the example, after months or even years without getting a buyer to the closing table, the seller decides to reduce the price to a more realistic price. At that time, the seller may have exhausted a number of the best prospects. Some are not interested in returning to look at the opportunity because they wasted time, and possibly money, on pursuing it in the past. Others may have found another business opportunity that suited them better since they were able to work out a deal with a realistic, motivated seller.
So how do you price a business at a realistic price – not overpricing to miss out on the “right one” but also not under pricing leaving money on the table? A third-party business valuation is the answer. These business valuations look at the specific qualities of your business as well as the financial performance of the past and projections into the future. In a worst case scenario and you cannot afford a formal business valuation, check out our Free Business Value Estimator to find out how to value a business.
Making sure that you price the business for sale opportunity is one of the most important steps in the selling process. A business broker that lets you list the business for whatever price you want versus one taking the time to evaluate your financials and quite possibly having a heart-to-heart conversation to let you know the realities of the marketplace is likely just looking to get listings. That is why industry averages show that only 1 in 5 businesses actually sell. We prefer to sell businesses verse listing businesses so we want to make sure that our clients understand the value of their businesses before going to the market to find a buyer.
Written by: Kipp A. Krukowski, MBA, CBI, CMEA and Owner of Confidential Business Sale, Inc. (www.BrokersBusiness.com)