Costly Mistakes To Avoid When Pricing Your Business For Sale
The vast majority of businesses for sale are overpriced by their owners and business brokers when initially put on the market. Not only is this one of the biggest reasons why 80% of businesses never sell, but this will ultimately hurt the selling price of the business even more over time as the price becomes stagnant and doesn’t receive any serious attention on the market.
Businesses are often over-priced by business owners because of the emotional value that they hold in their business. After spending so much time and money on the business, certainly the business is worth more, right? Well, unfortunately, that is rarely the case.
A major misconception amongst business owners looking to sell their business is that their tangible assets are far more valuable than they actually are. Imagine preparing your business for sale and spending $200,000 on new equipment and physical improvements, only to find out that the money you spent doesn’t actually make your business more valuable and that you likely won’t be getting that money back.
Business owners must also understand ahead of time that the costs associated with any upgrades are not considered when setting a selling price for their business, because the price is rather a multiple of what you can earn from the business and its upgrades.
For example, if you own a printing shop and purchase a new press to print designs on t-shirts, the value of that press when it comes time to sell your business will be based on a multiple of the income generated from the sale of the shirts that it produced, not the costs associated with purchasing the press to begin with.
After spending so much money on improvements, it is understandable for a business owner/seller to want to add the cost of those improvements on to the multiplier of their adjusted net income, resulting in a selling price that they can feel good about. The problem with this is that it is not an accurate assessment and the business will not maintain its inflated value.
Before spending a lot of money and resources on improvements and equipment as you prepare your business for sale, it would be wise to consult with a professional who can help accurately value your tangible assets and determine if costly improvements will actually add value to your business.