You’ve decided to sell your business, so you start asking the people around you what they think it’s worth. Your father-in-law, your CPA and your neighbor will probably give you vastly different numbers – and you’ve also got a rough calculation in your head of how much money it has cost you over the years to build the business into what it is today. Are any of these “valuations” correct? Probably not.
The hard truth of the business market is your business is only worth what someone is willing to pay for it.
Many, many sellers have a hard time with this concept – and unfortunately there are business brokers out there who will tell a potential client anything they want to hear in order to get the listing – meaning their bad advice will cause you to list your small business for an outrageous price that you will never, ever get.
The price you put on your business from day one is very important. A business that is priced correctly will tell buyers you are serious about selling (and that you aren’t totally insane).
Your business should not be listed for a price that is based on how much money you’ve invested over the years, how much all of the equipment and furnishings cost you when they were new (8 years ago) or how much you think you’re going to need in order to retire with the quality of life you currently have.
Your listing price will contain a lot of moving parts, but primarily it should be based on cash flow, the current value of any assets and what comparable businesses have actually sold for.
There are some occasions where a standardized multiple is used, but every small business is a unique case, and should be priced accordingly.
What should you do? Have a serious conversation with your business broker about where you would like to set the listing price and then listen to what they have to say. If they think you’re way above where you need to be, you should seriously consider their advice before demanding they list for whatever you want. Any good broker is going to walk away from a client who demands an outrageous price. A broker who will bend to your demands (regardless of reality) should be avoided.
Are you thinking about selling and are curious about what similar businesses have recently sold for? Would you like to know our thoughts on the current state of the market for your industry? Ask us! Please feel free to leave comments or questions and we would be happy to help.
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