All smart Business Brokers, Business Intermediaries, and Investment Bankers know, when a selling small business you must have an asking price in order to get business sales activity. Inexperienced Buyers absolutely want to know the business asking price. If the asking price is too far from the business valuation pricing rules of thumb, they will tend to say they are not interested even if there hesitation really is because of 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 that is for sale correctly from the start.
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It is very tempting to price a business high and wait for offers. Business brokers have learned that they rarely come. Often when buyers do appear for an overpriced listing it is from someone looking to steal a business on the cheap who puts in very low offers on many businesses waiting for a desperate business seller to accept their offer in frustration.. Believe me, once you commit to sell your business, the process of selling your business 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 business 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 websites, direct mail and selected calling 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.
If you are in a hurry to sell, price the business near an average price based on your valuation. Make sure you still have some negotiating room in your asking price. Buyers will almost always find a problem and the ability to give a little back solves many problems. If possible, always keep a few chips in your pocket to use to solve problems all the way through settlement.
One of my first listings was a small daycare center. The Seller had made her decision to sell and was now in a rush to get it done. She had been marketing the business for the past two months herself. She did not have a huge investment and just wanted out so, because she wanted a quick offer, she had priced the business at about 75% of the fair market value. Her one prospect proceeded to negotiate her down to 60% of the fair market value and still chose not to close. Prospects assumed something must be wrong with the business for it to be priced so low. We immediately suggested raising the price to 95% of fair market value. This was low enough to generate contacts from real prospects and gave us money with which to negotiate with. The business was sold and settled at 85% of fair market value in 60 days.
Gregory R. Caruso, JD, CPA, CVA
Harvest Business Advisors
Harvest Business Advisors works with contractors, engineers, distributors, manufactures, professional and service companies as business brokers or intermediaries, valuation experts, and succession and exit strategy consultants in Maryland, Pennsylvania, New Jersey, and Virginia.