How to Determine a Price for Your Small Business
There is a considerable difference between determining the value of a privately-held company and a publicly-held company. Topping the list of differences is the fact that privately-held companies do not have audited financial statements. Let’s look at how to determine a price for your small business as a privately held company.
An audited financial statement is a costly endeavor. In order to avoid the cost, many companies simply don’t go public. Of course, it should be noted that publicly held companies, as the name indicates, reveal much more about their finances than their privately held counterparts do. Privately held companies are often seen as being more mysterious. Publicly held companies are considered more “open.”
Business owners looking to sell their business will want to address the fact that their company lacks the public information associated with publicly held companies. Provide prospective buyers with as much verified information about your business as possible. This is one of the fastest and easiest ways to overcome buyers’ concerns. A smart move for any business owner is to work closely with their accountant to go over the numbers and create an easy-to-understand presentation for prospective buyers. This should serve to allay many of their concerns.
Work with an accountant to determine a price.
Working with your accountant is only the first step in providing prospective buyers with the information they need. The second step is to work with an outside appraiser or other expert who can determine the value of your business. After that, you’ll want to decide on what your market price will be, as well as your “wish price,” or the price that you would ideally want. Third, you must know your “rock bottom” lowest price. You, as the owner, need to have this information as it will greatly facilitate and streamline all negotiations.
Next, buyers will look at a wide range of factors to determine the price they’re willing to pay for your business, like:
- Product diversity
- The size of your customer base
- Potential competitors in the area
- Competitors on the horizon
- Potential disruptions to your business, such as supplier problems
- The stability of your earnings
- The stability of the market
- Need for capital.
Ultimately, the market will determine the sale price of your business. For business owners, the first and most important step is to work closely with professionals such as accountants, appraisers, Business Brokers and M&A Advisors to establish the price of your privately held business. You can count on brokerage professionals to properly organize the facts and numbers that support that price.