Are Businesses Advertised for Sale Overpriced?
Are businesses advertised for sale overpriced?
I firmly believe that the answer is generally yes. Business sales are not simple, straightforward transactions as no two sales are identical, every business sale is different.
Why are businesses for sale advertised at a higher price than the current market appraisals? There are several reasons why businesses for sale are overpriced, let’s explore some of these.
The majority of business owners are of the opinion that their business is worth far more than a broker’s appraisal, again there are several reasons for that. As brokers we have all heard the following lines:
“I’ve worked hard in my business for the past number of years and that should be worth something, I need to be paid for my time.”
“I started this business from nothing, worked long hours and made personal sacrifices to build it up, that should be worth something.”
Unfortunately, these statements are completely irrelevant to the sale price of a business. Potential buyers are not concerned about how hard the owner had to work, what sacrifices they had to make and for whatever number of years he has been at it.
Another extremely common one that as business brokers, we have all heard is:
“My accountant told me that my business is worth a certain amount.”
Accountants will generally value a business based purely on the financials. There’s a lot more than just financials when appraising a business. Accountants generally are also not au fait with the variety of sectors of different industries and/or the current market values.
Business brokers will sometimes provide the seller with an appraisal at an inflated price because they are more interested in the listing than actually selling the business. Those brokers want more listings on their books to make their profiles look better.
As brokers, after providing the seller with an appraisal, how many times have we all heard the following line? “A broker from a different agency advised me that he can obtain a much higher price than you.”
Another interesting reason for businesses to be advertised at a higher price is shared by some owners and brokers. If the business is advertised higher, we can haggle with a buyer and still obtain the appraisal price.
A business owner can obtain sworn business valuations that will stand up in a court of law, and obtain appraisals from several different reputable business brokers and accountants. No two will be alike, they will all be different. The most important aspect for a potential buyer is generally, the return on their investment. What is a business worth? Realistically a business is only worth what a potential buyer will pay for it in the current marketplace.
If the potential seller wants their business advertised at a higher price than our appraisal, what do we as brokers do? Why do I accept listing a business at a higher price than my appraisal? I don’t automatically accept to list the business; I will however do it if I firmly believe that it is a good business that I will be able to sell.
When I accept to list a business at a higher price than my appraisal, I advise the business owner, that I shall do it to test the market. I also insist that it is with the proviso that the business owner is prepared to reduce the price if we are not achieving the results at the advertised price. I will not list a business unless I firmly believe that I can sell it.
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About the author
Arnold Pierce Kelsey
Multiple award winning business broker.
As a distinguished multimillion-dollar transaction expert, Arnold demonstrates profound proficiency in ...
