No Two Businesses are Alike Which Makes Pricing a Difficult Proposition

September 7, 2008

Selling an Insurance Agency

When you buy a house, your Real Estate Agent can show you COMPS from other sales in the area to help you determine the value of your home. Businesses are a completely different animal because COMPS aren’t maintained on business sales. Most homes are purchased using a home loan where businesses are purchased using different types of funding. SBA Loans, Bank Loans, Lines of Credit, Seller Financing and cash are all common. Veteran Business Brokers often say a Business will ultimately sell for whatever someone is willing to pay for it. There are many factors that affect the pricing of a business but unfortunately there’s no set formula. Business Owners usually prefer to err on the side of overpricing so they don’t leave money on the table. Buyers err on the side of caution and think most businesses are overpriced. It’s human nature depending on what side you’re on to think this way. When we sold our first business we were grossly overpriced and after a year of haggling with 3 different suitors we realized that overpricing a business is a bad idea. When you sell a business you have 1 or 2 opportunities to sell it. Every business gets a buyer that’s actually willing and qualified to close a deal. When you first list your business for sale the first 60 days are crucial. If you don’t initiate a sale within 60 days, chances are you won’t sell for another 6 months or longer (if at all). After 120 days or so buyers will think something is wrong with the business and will shy away from it. If and when you do engage a buyer, they’ll be in the drivers seat because they know you’ve been on the market for longer than 4 months. Pricing a business to sell is one of the most important steps in the process. Overprice it and you run the risk of never selling. Under pricing or competitively pricing will generate multiple offers which will put you in a much better position to negotiate the best terms and close a deal.