This article are provided for information purposes only, and are not intended as legal advice.


Determining the asking price of your business for sale?

April 13th, 2010

When you are selling your business, you need to determine the asking price.  But putting a price on a business is not like putting a value on your house for sale.  If you are looking for a house, typically all the houses in the subdivision are roughly the same size and have the same features so you base your house price on a similar sale.  What happens if you have a house for sale and it is a custom built home, the house is larger than others in the area, the land is larger than other lots, how do you determine the value for sale when this is a unique property?  The same problems exist in a business.

 

No two businesses are identical.  You have have the same name, the same franchise, the same size of the building, the same price of goods for sale but one location has more sales and profit than the other.  Needless to say, the one with more profit will have a higher selling price.

 

In summary, there are no two businesses that are identical therefore you cannot use the analogy of the houses for sale and see what other businesses have sold in your area.  There is no central listing agency for businesses for sale.  MLS is used for houses for sale but businesses for sale are sold by business brokers, real estate agents, lawyers, accountant and consultants.  Each one works independent of the other and they do not post their business listings on a central processing.  Some business brokers will post on The Business Place therefore you can see what others are asking for a similar business.  However, location is very important for a business value.

 

If you have a business in for example Calgary, Alberta and the same business in Moncton New Brunswick, the one in Alberta will probably sell for more than the one in New Brunswick.  The cost of living is different, the potential of the business may be greater in Alberta than in New Brunswick etc and this will be factored into the purchase price.  Multiples of earnings for a service industry may be 3 times in Toronto but only 2 times in British Columbia.  The price will also vary city by city and not just state/province by state/province.

 

If you put your house up for sale and you ask too much, people will wait until you drop the purchase price to the right amount.  if you overprice your business for sale, investors rarely monitor your listing to see if you will drop the price.  As a result, pricing at fair market value is very important when selling a business.


Filed under: Selling a business — Gary Landa @ 10:07 am


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