pricing problems mistakes when selling your business

Common Mistakes To Avoid When Exiting A Business – Pricing Problems

Posted on November 12, 2013 · Posted in Blog

When it comes time to exiting a business, many entrepreneurs simply have unrealistic expectations.  They often ask for a number they want, not what the business is actually worth.  Time and time again prospective sellers seem to want 25% – 50% more than what the business is actually worth.  This severely limits the chances of a successful sale and usually assures a significantly more frustrating process.

We advise business owners contemplating a sale to get a third party market valuation – ideally 2-3 years in advance. Often times we’ll hear, “oh well, the competitor down the street sold for this, therefore my business is worth this much.” Unfortunately it just almost never works that way, and the reality is that every business and situation is different.

Getting an estimate of market valuation and potential options to exit the business can set a realistic expectation for the seller. If done well enough in advance, it can also allow sufficient time to mend problems associated with the business and increase the value to a more desirable price.

pricing problems mistakes when selling your businessMany sellers often overlook the downsides to an unrealistic expectation.

The first major downside is that it almost always extends the amount of time the business will be on the market. It can take months and sometimes years for the business owner to understand they have over priced the business in the market.  This is not usually suitable for someone looking to retire, is burnt out, or ready to move on to the next stage of their life.

Secondly, potential buyers  may be driven away by an unrealistic price and may not even take a second glance because of it.  When priced right, selling a business does not have to involve a lengthy negotiation process.   At the end of the day, most businesses ultimately end up at fair market value even after a long drawn out negotiation that starts with both sides far apart.

Setting a more reasonable asking price will not only increase the number of interested buyers, but can also alleviate the stress of negotiations that many individuals loathe.