We’ve discussed numerous times that the main reason a business doesn’t sell is the sellers overestimate of their offering. Sellers often try to assess the value of their business the same way they assess their home. Homes or any real property have a constant value including the worthiness of the land. You don’t have to do anything to a home in order for it to increase in value.
When a buyer looks at your business and determines the risk/reward factors hopefully they’ll see solid profits, a list of faithful clientele and happy customers. Most buyers will also review the downside which is; without your guidance and the work of your skilled employees, they’ll lose most of the customers and will have an office full of equipment and inventory.
If a homeowner moves out of their house it will maintain its value. Not so with a business. Businesses will ultimately sell for what the market is willing to pay for it. A few factors that affect the sale of businesses include:
- Profits and Revenue past 3-5 years
- Existing Equipment Contracts
- Building/Office Lease
- Dependence on Key Employees
- Other Assets
Before listing your business for sale, make sure you look at all of the variables involved before determining a price. Put yourself in the buyers position and see if it makes sense to pay X amount of money for your business with the terms you’re asking. If a buyer can’t make a reasonable living while covering all the debt the business incurs, chances are you’ll have a hard time selling your business.