How to Price a Business to Sell in a Down Economy

According to many experts in the industry, only about one third of all businesses that go up for sale actually sell.  These are not the best odds for business owners who are trying to sell, but perhaps the owner is not willing to learn how to price a business to sell.  Why is this?  Business valuation is one of the toughest topics to bring up when dealing with a business broker.  Some brokers will recommend a sale price that is so low that the business owner gets insulted.  But learning how to price a business to sell is the most important element of selling a business in a down economy. 

The method used to price your business may be different than what another business uses. That’s because there are several different calculations that can be used.  Each industry has their own standard formula that helps them arrive at a competitive selling price.

• ·         Look at your business in the same way that people from the marketplace view it.  Do you have a lot of competitors in the area who are doing better than you?  How much has the demand changed for your product or service over the years.  An honest analysis is in order so you can see where your business falls within the industry.
• ·         A thorough business valuation means looking for tools that pertain to your business or industry.  No two companies are the same, so what works with one business model in another market may not necessarily work for yours.  Find out how similar businesses in your are calculating the worth of their business in the marketplace.
• ·         Look at cash flow and find out how the business would benefit a potential owner.  Is there a high level of owner benefits and discretionary income that may give the owner a higher take-home salary?  Are there other non-cash benefits?  These factors may also help you price the business to sell.

Find out your multiplier.  Every industry uses a different multiplier, usually between 1 and 3, to help arrive at the value of the business.  This multiplier may be applied to the value of business assets, cash flow, or gross receipts, depending on the industry.

To learn more about the other variables involved in business valuation, visit BizSale.com or read their blog, “How to Beat the Odds and Price a Business to Sell.”