Once you have made the momentous decision to sell your business, the next logical question is, how much is my business worth? This is important for a couple of reasons. One is that you want to be confident that the proceeds from the sale of the business will be enough to support you in retirement, or fund a new venture.
The other reason this is important is that you want to have realistic expectations of a potential asking price and offers for your business. You usually want to have an asking price that leaves some room for negotiation but isn’t so high that you don’t get any offers for the business. There are few things as damaging in the sale process as a business that is priced too high. Historically businesses that are overpriced eventually sell below the market price for a number of reasons. Foremost of these reasons is that the potential buyers assume (usually wrongly) that there is something wrong with the business, as it has been on the market for a lengthy period of time. Another valid reason is that the potential buyers assume that the seller is not really committed to the sale of the business, otherwise it would be within the market range for that type of business. Consequently, buyers are reluctant to present any offers. Remember, business buyers are intelligent and informed and are very well aware of the current business market. Therefore, it is crucial for an owner to ask, what is my business worth?
To provide a potential asking price, Business Brokers will typically review your last 3 or more years of tax returns and profit and loss statements plus a year to date financial statement and interview you to find out about the strengths and weaknesses of your business. They will ask questions about your customers, products and services, employees, competitors, growth opportunities, and challenges. Then they will compare this information with their knowledge of the market and what other similar companies sell for and provide you with a recommendation of a potential asking price.
It’s best to have a business broker that doesn’t charge excessive upfront fees. That way you can be confident that their goals will be aligned with your goal of selling the business in a timely fashion at the best price.