A Business Brokers Inside Tips – How to Set a Business Sale Asking Price (Continued From Previous Post)

The When and Why of Pricing Your Business…or Not. Larger businesses that are being sold likely to be purchased by sophisticated investors, private equity groups and large corporations.  These buyers do not need to be given an asking price.  These Buyers will calculate what the business is worth to them and put in an offer.  If you give a business asking price to these prospects, you’ll simply cap your offers.

For a few businesses that size-wise and market-wise fall between larger sophisticated Buyers and the smaller, typically individual buyers, you can try to market to larger Buyers first without a price and then attach a price when it comes time to shift to smaller, less sophisticated Buyers.

Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

Gregory R. Caruso, JD, CPA, CVA
Harvest Business Advisors
Business Brokers, Business Valuations, Business Transactions
609-664-7955
gcaruso@harvestbusiness.com
www.harvestbusiness.com

How an Experienced Business Broker Sets a Business Sales Price

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.

Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

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
609-664-7955
gcaruso@harvestbusiness.com
www.harvestbusiness.com

How to Sell Your Business – Types of Buyers, Private Equity Groups (PEGS)

Selling your business is quite complex.  One of the most important things you should understand in order to get the highest business value who your buyer is and what they might want.  PEGS or Private Equity Groups are a viable group of buyers.

Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

Private Equity Groups, also known as PEGS.  PEGS are investment groups.  They want to buy a business – grow it quickly and exit in 5 to 7 years.  For a business to be a fit for them there must be a plan for growth.  Generally, to get into a line of business they are not already in, these Buyers usually want businesses with at least three million dollars of EBITDA.   The first buy in an industry by a PEG is generally called a Platform.  If they are already owners of the same type of business they may buy a smaller competitor.  This is called an add-on transaction.  They will joint venture with Sellers who are willing to sell control.  This can be a good group of prospects if the management wants to buy the business but does not have sufficient capital and the business has very good growth prospects and is fairly large. 

Business brokers and business intermediaries can assist you in finding PEGS and other buyers.  Remember, identify your best buyer and market to them.

Gregory R. Caruso, JD, CPA, CVA
Harvest Business Advisors
www.harvestbusiness.com
gcaruso@harvestbusiness.com

609-664-7955

 

How to Sell Your Business – Business Buyers; What about Competitors?

When looking to sell your business it is important to identify who your proper buyer is likely to be.  Business brokers and business intermediaries for main street and middle market businesses generally know what type of buyer will pay the most.  Many sellers think of competitors when they go to sell.

Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

Competitors.  Some businesses have natural efficiencies that come with size.  For instance, route businesses such as package delivery become more and more profitable the shorter the route between stops.  This creates a logical Buyer in a competitor because of the potential for synergy and economies of scale.  Location dependent businesses buy competitors to obtain more quality locations.  These Competitors are also known as Strategic Buyers.

Competitors may be the only Buyers for large complex businesses, especially those with low profits, because they can determine if “their way” of performing will increase the operating results of the existing cash flow.  Yet, if there are not natural synergies, competitors do not typically pay the highest price for most well run businesses because they already have a business system and are not willing to pay a premium to learn yours.

Truck Repair Blues

A large specialty truck sale and repair service company has seven locations in four states.  The owner had started the business twenty years earlier out of his spare bedroom.  He had grown the business to $45,000,000 in sales by under pricing and out hustling competitors every day.  The business is extremely complex with multiple product lines including new product sales, product service, and a startup division which is venturing into a completely new market.  He has a competent but homegrown management staff who do not have the ability to run the company for a purely financial Buyer.  The Seller has forbidden the intermediaries trying to make a market for his business to contact competitors and suppliers for fear that word will get out and it will hurt his business.  Even after explaining how the list can be very carefully tailored to prospective Buyers with capital, a strongly expressed interest, and a past history of making discreet purchases, the Seller still will not allow the intermediaries to approach anyone in the business.  No sale is possible under these conditions. 

Related businesses, not competitors.  For example, a graphics company might buy a printing business.  Or a concrete pipe company might buy a trucking company.  This concept is known as bounce-back synergy.  In these cases, one business is very dependent on the other.  This is a longer shot than many of the others but they do occur.  It also lessens the risk of giving all your detailed information to a competitor who never intends to buy you.

In all cases when thinking about selling your business think about who will pay the most for your business and how do you best interest them in your business.

Gregory R. Caruso, JD, CPA, CVA
Harvest Business Advisors
609-664-7955

gcaruso@harvestbusiness.com

www.harvestbusiness.com

Selling Your Business – Setting an Asking Price for Your Middle Market Business Sale

Setting an asking price when selling a larger middle market business is easy.   Experienced merger and acquisition experts, business brokers, and business intermediaries will tell you larger businesses likely to be purchased by sophisticated investors, private equity groups and large corporations do not need to have an asking price.  These business buyers when buying middle market businesses will calculate what the business is worth to them and put in an offer.  If you give an asking price to these prospects, you’ll simply cap your offers.

For a few businesses that size-wise and market-wise fall between larger sophisticated buyers and the corporate refugee, you can try to market to larger buyers first without a price and then attach a price when it comes time to shift to smaller, less sophisticated buyers.

Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

Still it is important to have realistically estimated a sales value of the business before the business sales process.  You will need this information to negotiate with prospects and obtain the best deal.  For this you must know the likely market value.  Knowing the likely sales price will also allow you to determine if the likely outcome from the business sales process will meet your needs in terms of sales price, likely buyers, tax liabilities and more. Just remember the best professional estimate of your business’s value is not the same as several buyers with checks. That is the real measure of value in any given market.

Always estimate the value of your business.  For larger middle market businesses do not put an “asking price” on your business when you go to sell your business.

 

Gregory R. Caruso, JD, CPA, CVA
Harvest Business Advisors
609-664-7955

gcaruso@harvestbusiness.com
www.harvestbusiness.com

 

 
Harvest Business Advisors believes in creating opportunity and building business value through business brokerage, business valuation, and succession consulting in Maryland, Virgina,  Pennsylvania, and New Jersey.