One of the most important steps in selling a business is pricing it correctly. There are several ways to determine what another party would be willing to pay for your business; a formal business valuation is one option. Alternatively, many businesses can be priced with a Professional Broker Opinion of Value.
Ultimately, the right approach will depend on the size and complexity of the business, the type of business, and the intended buyers of the business (i.e. individual investor vs. synergistic buyer).
The impact of improperly pricing a business can manifest a number of ways and at different points in the transaction. For example:
- A business owner attempting to sell without the services of a high quality broker may have unrealistic expectations about his/her business, and soon become frustrated with the lack of viable inquiries received.
- A poor business broker may price the business incorrectly – too high, and it won’t attract buyers – too low, and the seller isn’t realizing fair value.
- A buyer may uncover discrepancies in the value basis during due diligence, bringing the transaction progress to a halt [if not completely derailing it].
- Buyer and seller may both become frustrated when lending institutions come back and refuse to provide financing.
Visit the sections below to further enhance your understanding of business valuations: