Is Your Business Overpriced?

However a business owner makes it to that critical moment when he or she decides to sell, it’s important to realize that this is the beginning of an entirely new process.  

Whatever amazing expertise he/she may possess in running a business, selling a business is something entirely separate.

More than anything, emotion can get in the way of one of the most critical elements of this process: appropriate pricing.  

There are many points to consider when coming to an appropriate price, but today we’re going to focus on three.

What’s Fair

Are your financials in order? Are you in good standing with the IRS? Anything other than a strong “YES” to both of these questions will point you in the direction of what you need to work on.  

You can’t truly have an idea of what your business is worth unless you know what your numbers are. And if you have buyers who will be seeking SBA funding, and your business will be priced over $350,000, you’re going to need an independent valuation. 

The first thing they will ask you for is audit-worthy financials. A valuation is a good starting point for figuring out a list price for your business.

What Will Sell

For buyers who aren’t looking for a strategic acquisition, the focus is going to be on the length of time for payback of the original purchase price of the business.  

If you take the amount of the business loan and account for some measure of reasonable growth against the financial benefits the owner of your business can accrue, you should have a sense of how long it will take your buyer to get into the black.  

Looking at comps (i.e. what other businesses in your category have sold for) will also be very helpful.

Market Conditions

This is something entirely out of either the buyer or seller’s hands, as there are things like interest rates or “confidence” that can’t be controlled. But it can dictate how quickly (or slowly) a business sells.

With the centuries of experience we have at Apex, we have a good sense not only of current market conditions but about appropriate pricing strategies to adapt to those conditions.

Remember that the ultimate goal of a seller is to sell a business. Apart from not having a business that is capable of taking on a new owner, a big reason that businesses don’t sell is that they price themselves unreasonably. Next, they get unflattering questions when prospective buyers ask why the business has been listed for so long.  

Be smart. Price your business appropriately to give you the best chance to walk away happy when the transaction is done.