Question: "I want to sell my business and don't know what to ask for the selling price. Short of paying for a full-blown appraisal, how can I get a feel that I'm in the ballpark?"
Many times it doesn't matter what your business is worth on the books, or how much it is appraised for. Ultimately, the real value of your business is dependent on what someone is willing to pay for it. If a new owner can't afford to make payments to the bank from the money the business produces; no one will buy it. When you want to sell your business ask yourself, "How can I price this business so that a buyer can meet his needs?" In most cases, those needs are:
With a healthy economy, most buyers realize they could earn at least 10 percent a year just by putting their savings in a mutual-fund portfolio. Most hope to better that performance, with an investment return that covers the additional risk associated with buying a business. That may create problems for you the current business owner because you could be drawing below market salary or you don't pay any financing costs at all because you grew the company from scratch.
Although most buyers look for a company with good growth prospects, they will price deals based upon prior financial performance and pay special attention to the previous year's cash flow. The banks look carefully at this and also like to see a lot of physical assets for collateral and little or no "blue sky" or intangible assets in the selling price.
When preparing to sell your business:
Although the Small Business & Technology Development Centers (SBTDC) are not in the appraisal business, we can figure if a potential buyer can breakeven or make a profit based on your selling price. For further assistance, contact a counselor at a SBTDC near you.
This story was featured in the March 2008 newsletter
- Jeanne Dau, Director, Chillicothe SBTDC Reviewed/updated by Rebecca Evans, business specialist, MO SBTDC 1/3/08