Pricing a Business: Part 2

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Pricing a Business: Part 2

Over the past couple of week’s I’ve posted twice about two extremely important issues – pricing a business and valuing a business – for business brokers and business sellers to be aware of and knowledgeable about when bringing a business to market.

The first was the discussion about valuing a business and some of the issues to consider when doing so.

When valuing a business, the objective is to know what the market suggests it’s worth before getting too far down the road of the selling process when, having not considered its value, you discover how much time and money you’ve wasted because the price asked bore no relation whatsoever to reality.

That post in turn generated a number of questions about pricing a business and that issue was discussed in last week’s post.

And as it happened, both these issues were raised in last Friday’s FAWU.

What’s a FAWU, you ask? Well, as some of you know, anyone who enrolls in our course on becoming a business broker is invited to join our weekly FAWU (“Friday Afternoon Wrap Up”), essentially a Q&A and live discussion of various aspects of the course and of the general business of brokering businesses.

And, coincidentally, during this past Friday’s FAWU the topic of valuing and pricing was raised and in the course of the subsequent discussion, I used a couple of examples – case studies, if you will – from the annals of Worldwide Business Broker’s last 20 years in the trenches.

This post is about one such example that I DIDN’T use but that perfectly illustrates the need for understanding both how to value and how to price a business before you try to sell it. Of course, this discussion is pertinent only when a business is brought to market with a price. More on THAT topic in a future post.

Well, as fate would have it, Rob surfaced the other day – in a real estate transaction. He was selling a small piece of real estate near his business.

As long-term readers of the journalistic tour de force know, my bride owns a real estate title and settlement company and by the strangest coincidence, her company was handling Rob’s property transfer.

At the conclusion of that transaction, when Rob was being congratulated on the sale, he mentioned to one of my wife’s assistants, “Now, if I could only sell my business!”

The Bottom Line

This story perfectly illustrates both the need to know what a business is worth – not what the owner wants – and the importance of setting a market price before offering a business for sale.

I’ve mentioned often that every business that doesn’t fail will eventually be sold and that applies to Rob’s business as it does to all others. I’ve also often stated that there’s only one reason that a business – or anything else for that matter – doesn’t sell; the price is too high.

In fact, even a business that’s losing money and seems to be on the expressway to failure might have some value to someone. A professional business broker can probably find that value. It may not be the number the owner wants – and it probably won’t be – but when you run into a potential client that wants more than what you know the business is worth, remember Rob who, after 14 years(!) is still trying to sell his business – the wrong way!

If you have any questions, comments or feedback on this topic – or any topic related to business – I want to hear from you. Put them in the Comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.

I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week!

Joe

#business #businessacquisition #sellabusiness #becomeabusinessbroker #businessbrokering #businessvaluation #MergersandAcquisitions

The author is the founder of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 1,000 in the world. He can be reached at joe@WorldwideBusinessBlog.com

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