At least half of businesses on the market never sale, or face a failed transaction. These failed transactions occur for many reasons—an unattractive lease location or poor lease terms; bad record-keeping; low motivation from the seller to see the deal through. But ultimately, the most common culprit in a failed deal is unrealistic pricing expectations. That’s doubly true when those unrealistic expectations are coupled with poor record-keeping or a lackluster attempt to market the business.
When an owner lists their company for an apparently unreasonable price, it scares off buyers before they even have the chance to look at your business. So a price that’s too high acts as an anti-marketing tool.
Business owners who have deeply invested in their company want top dollar for their work, so they often value the business based on where they hope profits will take them, on what it was worth before the recession, or how they value the work they’ve put into the business.
Sometimes, buyers encounter these high prices and hope to talk down sellers. So if a buyer attempts to talk you down during negotiations, maintain an open mind. Consider why the buyer might not want to pay full asking price.
Many sellers arrive at a final asking price without a valuation. They essentially pick a number out of nowhere, and then cling to it. If you haven’t had a professional evaluation, it’s especially important to re-evaluate your pricing. Then seek professional assistance.
Buyers want to see the value of your company represented in hard facts. You must be able to support pricing considerations with a clear and thoughtful analysis of your business’s value. At minimum, buyers will likely expect to analyze your profit and loss statement from the prior three years. They may want to see other records. Having these readily available can inspire confidence and support your valuation assessment.
After the buyer makes an offer, both parties must work together to negotiate a fair deal. Everything is negotiable. Moreover, non-monetary terms may have a more significant impact on your final profit than the sale price itself. So read through the contract and negotiate favorable deal terms. As you do, work to develop a strong rapport with the buyer. Trust matters, and buyers are willing to pay more to sellers they trust and like. Don’t get offended or excited, and instead pursue a deal that addresses the concerns and needs of both sides.
