Wouldn’t we all love to put our business on the market and get a full-price, all-cash offer on day one?
As you can probably guess, this isn’t how business deals go in the real world. As a seller you need to be prepared for flexibility if you really want to end up at a closing table.
The first thing you need to be flexible with? Price. You may have a number in your head, a dream amount that would make all of the personal investment of time, energy and money into your business worth it in the end.
Unfortunately, a business is only really worth what someone is willing to pay for it – so your dream number is probably a far-fetched fantasy. When you first talk with your business broker, pricing will be a big part of the discussion. In order to have a successful sale, you need to price your business right from day one. Overpriced businesses will get overlooked by good buyers and languish on listing sites indefinitely.
How do you set an appropriate price?
The price you set needs to be based on what the current market will support, what comparable businesses have actually sold for recently and the cash flow the business currently generates. The original retail cost of your ten year old equipment, the amount of money you spent on cosmetic improvements last year, how much it cost you to buy the business 15 years ago – these things aren’t going to contribute to a realistic price. The key here is to listen to your broker about what a sell-able listing price would be.
The second thing you need to be flexible about is financing. The all-cash deal is extraordinarily rare, and the vast majority of small business sales involve at least a bit of seller financing. The good news is in most seller financing deals the buyer is putting up a substantial down payment, so you won’t be financing the entire purchase price. The other good news is there is no set or absolute way that a seller financed deal needs to look (like there would be with a more traditional loan from a major lending institution), so you can negotiate a creative deal that makes everyone happy.
By offering seller financing you will also be opening up your business listing to far more buyers than demanding a full-price all-cash offer would allow. Deals that include seller financing also show buyers that you have enough faith in the future of your business that you would be willing to depend on that future to get paid.
Are you thinking about selling your business and are wondering what an appropriate listing price would be? Do you have questions about what kinds of creative seller financing deals we’ve put together in the past? Ask us! Feel free to leave any comments or questions here.
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