HIGHLIGHTS:
A professional valuation is an accurate and strong way to know what your business’s price baseline is. Use information about industry and market conditions, geographic location, and overall desirability to understand what your price range is.
Oftentimes, it can be difficult to know how to price your listing, especially when considering how to determine a price that’s reasonable to buyers, yet accurately reflects your business’s value. Below are some tips to help you establish a pricing strategy for achieving this balance, and determining a fair price for your business.
1. Use a Professional Valuation as a Price Baseline
Obtaining a professional valuation is the best way to ensure that the resulting figure is truly accurate, and that it was derived using the valuation method most appropriate for your business. The figure returned from a professional valuation can serve as your pricing baseline, as, other expenses not considered, selling at the figure would theoretically result in breaking even.
If you don’t plan on selling in the near future, a professional valuation may be an expense that you don’t need to incur. Online software and tools, such as our calculator, can return a figure that can shed light onto what your estimated pricing range may be.
2. Understand Current Industry and General Market Conditions
These conditions can greatly affect how you can price your business. For example, if industry conditions are poor, even if the general market is thriving, it may be much more difficult to fetch a higher price for your business, so you should price on a moderate to lower price range. Additionally, if the general market is in a downturn but your industry is booming, what price you can obtain will depend on who the prospective buyer is, so you should aim for a moderate to slightly higher price range.
3. Consider Your Business’s Geographic Location
If applicable, your business’s physical location(s) can affect how you can price your business. Physical locations in busy, high-traffic areas may be able to fetch a higher price as the buyer will understand that this factor means that the business has a good flow of potential customers.
Alternatively, businesses in a more inaccessible or less desirable location, or in a location where similar businesses are beginning to phase out, may have a harder time finding buyers willing to pay a higher price.
4. Evaluate Your Business’s Overall Desirability
Some aspects of your business, when isolated and viewed alone, may make your entire business seem less desirable to prospective buyers. However, when you consider other factors, those may outweigh negatives and make your business as a whole desirable. Remember that no feature of your business exists in a vacuum, so look at the bigger picture as objectively as possible.
Generally, if your business’s overall features make it more desirable, you can set a higher price range, with the upper bound of the range increasing based on the degree of desirability. In other words, the more desirable your business is, the higher you can set your price range.
The inverse is also true, but don’t underestimate or undervalue your business. You should never have a lower bound for your price range that, all other factors ignored, would result in selling at a loss. However, if your business as a whole is undesirable, you may want to hold off on selling and employ quick fixes, short-term improvements, and, if possible, long-term improvements to eliminate (or at least offset) the negatives, thus increasing its desirability.
