The Price is Right – How to Realistically Value Your Business For Sale

When setting out on the road to selling your business, the key factors that may or may not determine a quick sale is ultimately the price. For those new to buying or selling a business, the task of valuing something that is essentially an ever evolving entity can be extremely difficult. Whether you are on the buying side of the fence or the seller, you need to take a viewpoint from both sides to truly understand if an asking price is realistic or how you go about negotiating a price that suits all parties.

Each and every business is different and no doubt in many if not most cases, every business for sale has had it’s ups and downs, not to mention a few undisclosed secrets. As a seller, you want to get the best price you possibly can – this is obvious. As a buyer, you want to ensure that the offer you make is credible and will gain a return. Anything less would be deemed as a disaster.

In this blog, we will concentrate solely on the sellers point of view on valuing a business for sale. When you decide to put your business on the market, not only do you want to ensure that you get a good fee for the business, you need to ideally walk away feeling that your hard work, time and capital invested was worth while. Sadly though, many businesses are sold under circumstances that simply don’t allow this to happen. In such cases, a fire sale or quick sale could be the best way out to relieve you of the burden. But that’s another story entirely…

One of the most cost effective ways of getting a good idea of your businesses value is to speak to a broker or business transfer agent. In most cases, agents will come to see you for an initial fee-free consultation and will discuss your business and what you are essentially selling. Best of all, they will in many cases give you a reasonably good idea of the value of your business. This is usually achieved however, by having sight of your accounts. So make sure you have these ready to present! Most agents will want to see the bottom line e.g your net profit. If your business is making money, it will no doubt have some value. If it is making a loss, the process of valuing the assets and the goodwill (if you have any) could be a little bumpy.

You will however, do yourself little harm by speaking to a broker. In most cases you are not obligated to use their services. However, with their vast experience and knowledge, they could help you achieve your asking price a lot quicker which is good news for everyone. But first off, get your price right and ensure your expectations are realistic.

In my experience, there are a number of ways to value a business. In most cases Best way to get a Florida business the net profit figure will be a good starter for a small to medium sized enterprise however, this rule doesn’t always fit every case. Financial data only shows a fraction of what the company has to offer any potential investor because essentially, your business may be where it is today by having a great team, great products or amazing customer service. Never underestimate the power of people when considering the value of any business.

Don’t get greedy though. I have seen so many fledgling businesses hastily put up for sale at ridiculous figures because the owner decided that it wasn’t for them anymore. A small business with limited trading history, barely making any money asking for 5-6 figures! It happens and it happens a lot. If you have invested several thousand into getting your business started, think about firstly seeing what that investment is now worth. Has it grown or has it disappeared into an expensive black hole? If its the former, you potentially have a great business for a future investor. If it’s the latter, you need to make some tough decisions on the valuation – and most likely you won’t like them!

Remember though, when selling anything in life whether it’s your house, car, second hand computer on eBay or your business, the price can always come down but rarely does it go up. Think of one simple rule… “if I were buying this business today, what would I be happy to pay?” Be brutally honest to yourself. You’ll no doubt find that you arrive at a figure that you are satisfied with and most prospective buyers will be happy to negotiate around. But before you take that leap and advertise your business for sale at that price, speak to the people that matter. Your business partners, investors, accountants, lawyers and agents. If they agree, you’re probably on the right road to a successful sale price.

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