How to Set Your Asking Price?
How to Set Your Asking Price?
One of the fastest-growing segments in the marketplace is said to be the sale of businesses online. For some business owners the decision to sell their business could be exciting while others could find it tricky. While browsing through the internet you will find numerous business listings that are priced from thousands to millions of Kuwaiti Dinars – so how did they determine the worth of their business? Coming up with the conclusion of what price your business is valued at should be of high importance. As a business seller, if you set your price too high, you most likely will not obtain interested business buyers. If you price your business too low, you are most likely to suffer the loss of a great deal of money. The marketplace for buying & selling of businesses is dynamic as the asking – selling price fluctuates continuously & the fair price could only be determined as the amount the seller is willing to accept & the buyer is willing to pay for the business.
Worth of Your Tangible Assets
This is one of the easiest methods to take when you are trying to identify the value your business is estimated at. Begin by creating a list of assets, both tangible & intangible assets. In the case of most businesses, the assets are considered into the business’s complete value but in some cases are not. Intangible assets like copyrights & trademarks are worth enormous amounts of money, thus focusing solely on the cash flow of your business is not enough to determine the worth of the business. If you are including these assets in the business sale, it is important to make sure potential buyers are aware about it. Another beneficial method would be to liquidate the assets prior to the sale of the business as it could recover your business value - if you had determined that the value of assets & the value of the business sale is similar.
Every business gains its positive value through a definite cash flow. We highly recommend consulting with your accountant or bookkeeper to gather & analyze the financial statements of the previous three to five years – this may include unnecessary expenses that would affect the success of the business operations. You are required to gather the Income statements – which shows your gross revenue, costs & the yearly profits or losses your business has incurred, the balance sheet – which would disclose the value of the tangible assets & liabilities, the cash flow statements – which reveals the amount of money paid & received from your business & how it may have resulted as a change in the business assets & the statement of owner’s cash flow also known as the statement of seller’s discretionary earnings (SDE) – which discloses the amount made by your business after backing out the non-recurrent & discretionary expenses & also serves as a basis for the sale pricing & is of primary interest to buyers. After all the documentation is in place & prior to the sale announcement, make sure to hire an attorney to analyze & evaluate all the information that would be used to validate the business success.
Establish the target & minimum price for your business in order to negotiate better with prospect buyers. Estimate the business value using earnings multiple to gain key financial indicators, usually through revenue and cash flow. The multiples may vary depending on various factors such as the nature of the business & its geographic location. Generally, the business values range from one to four times of the annual cash flow. The estimated earnings multiplier is used to assess the important areas that would affect the future of your business – products, revenue, profits, customer base & even the business position in its respective industry. You would have to multiply the seller’s discretionary earnings (SDE) by the earnings multiplier to conclude with an estimated selling price.
After concluding the projected business selling price, conduct a research on other businesses listed for sale within the same business category & type to analyze the area & price range. Professionals like reputed business brokers or appraisers could assist business owners to determine the business value – this would provide you with the direction & growth of your business as well as its strengths & weaknesses.
Avoid Emotional Judgement
As a business owner, you have undoubtedly invested a lot of time & resources into your business & the departure may be a huge challenge. It is completely reasonable for you to feel this way, however, your emotions should not intervene in the process of selling your business as you are more likely to overestimate the value of your business. Make sure to run your figures by a trusted professional to obtain fair judgement & straightforward feedback – this will increase your chances at a better sale & decrease your chances of losing money.
Business owners are encouraged to request assistance from the Bexit team.
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