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How Important is the Asking Price?

Selling your business can be an exciting time, as it can mean pastures new for you, and a new adventure for the buyers of your business. However, reaching this point can take several months, years in some cases, and just like selling anything from property to cars, there is a common sticking point – price.

You may say, as the vendor, that the price of the business is too low or competitively priced. Your prospective buyers may say that it is too expensive, and try and knock a few thousand pounds off the price, so who does decide the value or price of a business and how important is the asking price?

What is price based on?

In the first instance, you yourself may have an idea of the value or financial worth of your business. After all, you have been operating in the sector or industry for some time, so you have a fair idea of what your business and its assets, compute to.

There is a danger in self-evaluation, however. You are close to your business and it has been built around late nights and working all weekend. Your opinion is subjective, rather than objective and though you might wish for a price tag of £1 million, for example, but your business may not be worth that at all.

A realistic and attractive option

If you are in the market to sell, you need and want your business priced as a competitive rate to attract potential buyers. Much like selling property, there may be some movement in the price (unfortunately, downwards in most cases) but if you over-price your business, then potential investors and buyers may look past it.

There may be a deal to be done, but the price needs to be realistic and attractive whilst allowing you some margin with which to negotiate.

Studies show how much the actual selling price varies from the asking price and for small business, buyers have been known to grab a bargain by buying 15% under the initial asking price. For larger businesses asking for around £1 million plus, this can be as little as 10% under the asking price.

Don’t be tempted to pitch too high

This revealing statistic, however, is too general on which to simply add on another 15% on the price of your business and wait for someone to barter you down.

Pitching a price too high, as any business broker will tell you, is a sure fire way of making your business look unattractive. The right buyers – the ones with the money and the know-how – will simply glance over it, in favour of one in their price range that offers the same opportunities.

How to determine the right price

There is no doubt that the professional services of a business broker pays dividends when it comes to pitching the price right, as well as marketing your business as a going-concern to the right potential buyers.

There are many factors taken in to account when deciding on an asking price for a business, with many approaches combined to give an overall price that is a true and competitive financial reflection.

A business transfer agent will look at other business in your sector or industry, and compare their business with yours. They will look in some detail at your business too, looking at income, as well as assets and liabilities and from this, they will have a price range as well as suggestions of where to pitch your business.

In essence, however, a business broker can only advise on the price as the major variable that impacts on the price of your business is the marketplace. On one hand, you could struggle to sell at anywhere near the asking price but, on the other, you may have competing buyers that drive the price up.

Expert advice provided by Sovereign Business Transfer – leading UK business brokers and transfer agents.