Small and mid-sized businesses (it varies with the industry but typically up to about $5 million in revenue) that are being sold must have an asking price in order to get activity. Business brokers know that inexperienced business Buyers absolutely want to know the asking price. If the asking price is too far from the pricing rules of thumb, they will tend to say they are not interested even if the problem really is price. Americans expect to negotiate, but only a little. They tend not to want to insult the Seller by offering 50 cents on the dollar. For this reason, it is important to price a business correctly from the start.
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It is very tempting to price a business high and wait for offers. They rarely come. Often when they do it is from someone looking to steal a business on the cheap who puts in very low offers on many businesses waiting for someone to accept their offer in frustration.. Believe me, once you commit to sell your business, the process seems to take forever even when it is progressing well. When no one is calling, it really drags out. Don’t overprice your business and, later, fall victim to this low-ball Buyer strategy.
There are Buyers for almost all profitable businesses but there may be only two or three in a given market area. You need to get these Buyers interested. Proper pricing will do that. We recommend that you price the business no higher than 10% above the high end of reasonable. This will give you negotiating room while presenting an attractive offering that will encourage prospects to continue looking at your business.
If, after 90 days of proper marketing and prospecting (ads are appearing in the right publications, direct mail has gone to the right people), you do not have serious prospects working on an offer then you should seriously consider cutting the asking price. The market is telling you something.
Gregory R. Caruso, JD, CPA, CVA
Harvest Business Advisors