Here are four strategies you can use when pricing your business.
A lot of clients who call us all across the country think the way you price a business is very simple. They assume it’s just a multiple of earnings, and that if they take their business to the market for $2,000,000, someone’s going to pay them $2,000,000 for it. However, it’s not as straightforward as that. There’s a whole strategy that goes into pricing a business.
There are four ways we can take a business to the market to make sure you get the best price and the terms that you deserve:
1. $2 million business. Let’s say your business is worth $2 million, and you take it to market at that price. There are huge advantages to that because it would attract the really serious buyers who are looking in the marketplace. Ultimately, it brings you the right buyers and gets you better pricing and terms.
2. Go above market. Sometimes you can go above market. If you’re in a healthy market or if you’re in a growing region of the country, you might find the needle in the haystack. Maybe there’s somebody who has to be in a certain city, which lets you go 10% to 15% above what the valuation is. Wait for 30 to 90 days, and see whether you have that one buyer that would pay up to get your business.
“There’s an entire strategy that goes into pricing a business.”
3. Go slightly under valuation. What this does is creates incredible competition for your business. The more competition there is and the more buyers who are looking to buy a business, the better terms and offers you get.
4. Reverse auction. It’s counterintuitive, but we’ve been using it a lot lately, and we’ve had tremendous success with it. What it means is we know what your business is worth because we’re going to do a valuation, but when we take a business to the market, we go to market without a price. However, we have to determine and market your business properly. We’ve got to package it right and communicate to potential buyers why they want to buy your business. You need a good investment thesis. Going to the market without a price is a strategy that can give you pretty much everything you’re looking for when you’re taking your business for a sale.
You have to figure out which one of these four strategies is the best for your business and for your regions to ensure you’re getting the best price for your business. If you have any questions, please reach out. We’d be happy to help!
