11/ 21/ 2005
by Lena Basha
5 things to consider before pricing your business
A typical small-business owner believes his business could sell for double what it is actually worth, says Russell Brown, publisher of BusinessBookPress.com (http://www.businessbookpress.com), a resource Web site for selling and valuing businesses. That’s because business owners don’t realize that the sweat equity put into growing a business doesn’t add value. “An appraisal assesses what that business is going to do financially for a buyer now—not how hard the previous owner worked to get there,” Brown says.
Before you set the price on your small business, Brown suggests considering these factors:
1. Length of ownership: The number of years your business has been in operation adds value, which appraisers refer to as goodwill value.
2. Suppliers and customers: Will it be easy for the buyer to maintain relationships with current suppliers and customers after the sale?
3. Key employees: Will key personnel stay on after the business has been purchased? How long have they been with the business?
4. Closing time: “Many business owners think that if they put their business up for sale, it’s going to sell next month.” A more likely estimate is six months to a year, Brown says.
5. Financing: Small-business owners are often under the impression that once the sale closes, that’s it. “Eighty percent of small-business sales are financed by the seller,” Brown says. “If you aren’t willing to finance the sale, you’re going to get less money for your business.”
