JUSTIFYING THE PRICE
We often discuss the importance of having a
valuation done when considering selling a business.
From the amount of time a business remains on
the market to being able to justify the asking price,
without a valuation there’s no way anyone involved
has much of an idea what the business being
offered is worth– with the possible exception of the
buyer.
And when the buyer knows more than the seller
– when that buyer knows what similar businesses
have sold for or are currently available for – the
seller and their broker are at an immediate and
distinct disadvantage.
Like any new business broker, when I started
Worldwide Business Brokers back in 2001, I needed
listings. I would always value the business ahead of
time but, still, I needed listings. I might know the
value and be able to explain it to our potential client
but the client very often had a number in mind and
no plan to deviate from that number.
This need I had for listings resulted in my taking a
couple of early ones at the price the seller wanted; a
price that I knew would render the business un-
sellable. But I needed listings.
The gory details of the following two examples – my
first two listings back in the very early 2000s – are
taught in our courses and are constant topics in our
weekly support sessions. Both are true stories.
SELLING WITH THE RIGHT PRICE
The first listing I took was for a wholesale business
located on the east coast of the U.S. We valued the
business at $1.25 million.
I took that valuation – a 24-page graphic-rich opus
– to the owners, explained where we got the data
we used, the number of valuation techniques we
employed, the methodologies we utilized, the final
calculation approaches we brought to bear and
how we determined and applied specific levels of
importance to each method’s result to arrive at our
final range of likely values.
The sellers took a weekend to review the document.
When we got together the following week, they
asked a few questions about the numbers but soon
their questions were more about how we planned to
market their business; questions that were related
to process. No longer were we discussing value.
They agreed with the valuation and agreed to list
the business at that price.
I sold that business in four months – marketing,
LOI, purchase contract, due diligence, contingency
removal, financing sourcing and closing; four
months. When we showed prospective buyers how
we arrived at the business’ value, we received not
the first peep of argument. We found a buyer for the
business at full price.