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Asking Price for a Business Versus Selling Price

Obviously, most sellers hope that their asking price is the final selling price. However, studies on the subject reveal that this is not the case. It happens in a few cases, certainly, but in the vast majority of sales, the asking price exceeds the selling price. The two obvious reasons cover almost all of the bases.

1. The seller asks more to begin with, assuming that the buyer will offer less.

2. The buyer offers less, assuming that the above statement is true.

Very few sellers place a price on their business and set it in concrete. The big reason why the price shouldn't be set in concrete is that there are just too many variables. Some major ones are:

• Is it a cash transaction or will the seller be asked to finance a portion of the selling price?

• Does the buyer have so many stipulations or requirements in the offer that the seller is unwilling to accept them?

• Only the marketplace can really determine a selling price.

When it comes time to sell or even to consider selling their business, business owners are influenced not only by their financial stake in the business, but also by their personal and emotional stake in it. Their business is most likely their biggest asset. They also have usually poured a lot of themselves into building the business. There are, then, some other less obvious factors that should be taken into consideration when deriving an asking price for a business. For example, as one expert has pointed out:

• Businesses are bought and sold by people, so non-financial matters, personal issues and motivation can enter into the equation.

• Supply and demand may also play a role, and neither side may be aware of it.

• Buyers buy businesses for different reasons. Someone seeking a job may pay more because they would enjoy working in a particular business as opposed to a buyer who is buying strictly based on the financials. As the saying goes, when a buyer is considering buying a business: "Value is in the eyes of the beholder."

• Sellers over-estimate the value of the future without understanding that it is the buyer's time and capital that create the future. As another old saying goes: "The future ain't happened yet."

• Business valuations, regardless of who conducts them, are just opinions. As stated earlier, "Only the marketplace can really determine the price."

   

  Tim Fawcett is a guest writer and a business broker professional
  1-506-331-0200
  www.eastwindinc.ca