Streetwise Advice: Setting the Asking Price for a Business

Be sure you are serious

Deciding to sell your business is not a decision that should be taken lightly. Selling a business will take up a lot of your time and efforts. It will probably cause some business disruption, especially when employees, customers, competitors, and vendors are aware that your business is for sale.

What price should I ask?

When it comes to selling their business, many business owners set ridiculously high asking prices. They are making a serious mistake. A high asking price scares away many potential buyers. It tells some people that the owner is not serious about selling their business. And, because the high asking price might mean the business will remain on the market for a long period of time, other potential buyers may wonder if there isn’t some hidden problem with that business that has kept other prospects from negotiating a deal.

Furthermore, if you have a business worth at least several million dollars in revenue that you are primarily trying to sell within your industry, then I would avoid listing any asking price at all. Even if pushed on giving a price during a phone call, I would simply say that, yes, the business is absolutely for sale, that I am very reasonable about the price I am seeking, but it is a competitive process. I would not even give a price range that I am considering. I am merely looking for the price the business market will bear. I would tell them to make their best offer and I will seriously entertain it.

I would also tend to set a firm closing date for offers so that companies know they have just one chance to make their best bid. However, once that offer is in, I might then go back to the two or three companies placing the highest bids and ask them to clarify and/or improve their terms and price.

Determine what your bottom-line price is in advance

While you never want to mention what your rock-bottom price is during preliminary negotiations, you will find that having set both a target and a minimum price in your mind will enable you to negotiate more decisively.

Prepare statements and other information in advance

Be sure you have done your homework before you run the first advertisements announcing the sale of your business. Your first prospects may be your best prospects. Be sure you have prepared financial statements and literature promoting your business. Also, be sure to have an attorney review any material you will be using to corroborate the success or nature of the business before you announce the sale publicly.

A fabulous book is a given

It is both amazing and sad to me that people spend their whole lives building a business, only to see much of the value they have created lost because the enterprise is represented in a quickly or poorly constructed book.

Other people don’t know your business, nor do they know all the value you have put into it. There is no broker or investment banker who can construct a great offering book without lots of input from you.

Your book should explain in easily understood detail what your business is all about. The executive summary, which should be the first couple of pages of your book, are especially important. If the summary isn’t great and compelling, buyers aren’t going to read beyond that.

You want potential buyers to really appreciate and understand your business. You want them to appreciate the value. You also want to disclose material issues in the book as well, not just to avoid lawsuits down the road, but so buyers are aware of them from the beginning and those issues are less likely to pop up as deal-killing surprises later.

I believe that with many business deals, the difference between a good book and bad book could mean a 50 percent (or more) difference in the final selling price. A good book isn’t merely going to increase the amount that potential buyers will offer, but it can significantly increase the number of potential buyers who make an offer.

About Bob Adams

Bob Adams is a Harvard MBA serial entrepreneur. He has started over a dozen businesses including one that he launched with $1500 and sold for $40 million. He has written 17 books and created 52 online courses for entrepreneurs. Bob also founded BusinessTown, the go-to learning platform for starting and running a business.