Why its important to price your business correctly
It’s no surprise that anyone selling a business wants to get as high a price as possible. But did you know that pricing your business correctly from the start could save you thousands in the long run?
“It is very important when you take your business to the market that you price it correctly,” says
Zoran Sarabaca - founder of Xcllusive Business Sales.
“In my opinion, one of the biggest errors business owners make is over-pricing a business.
“On the surface, it may sound like a good strategy, you start high, the buyer starts low and you meet at the market price. In reality, it works the opposite way.”
Zoran believes that if you don’t price the business right, it could end up costing you thousands of dollars when you sell it. It’s all about market dynamics.
Most of the people who look at buying your business have been looking at businesses for several months. That’s why most enquiries about your business come in the first 60-90 days.
“Let’s say we are selling a business worth around $1 million and we start it off at $1.5 million to test the market. The thing is, whilst it’s wise to leave some room for negotiation, one third of the price is a huge difference,” says Zoran.
“So, your business sits on the market at $1.5 million for 60-90 days as people enquire about it. But the chances are, if they think it’s worth $1 million, they won’t offer you $1 million. Here’s why:
- Cutting down somebody’s price by a third makes buyers feel uncomfortable and they don’t want to offend you.
- Some of these buyers won’t think you’re serious about selling your business because you have set the price so high.
“After 60-90 days, with no buyers, you start dropping down the price. But you won’t get many enquiries because the best buyers already looked at your business when it was over-priced. A year or so later, your business is still for sale but now at the market price.”
However, says Zoran, when those buyers look at your business now, they are wondering why it didn’t sell. What’s wrong with it?
“The only thing wrong with your business is that it was over-priced to begin with,” he said.
“Whatever the reason was that made you put the business on the market back then is even more pressing now. The danger is that you have since taken your eye off the ball and not made the investments needed to keep it a $1 million business.
“It’s not uncommon that when a business is on the market that long, it affects the performance of the business and then you have a business that’s not generating the same profits. You could go back to one of those early potential buyers and agree that it’s actually worth $1 million, not $1.5 million, but they won’t pay that now and you could sell for under the market value.
“Unfortunately, this is too common an occurrence. That’s why it’s crucial to price the business right at the beginning,” said Zoran.
“Let’s say you priced that same business just above the market price, say 10%. During the first 60-90 days, you’ll have several buyers looking at it. They have been looking at several businesses, so they have a fair idea of market price. When they find a good business at the right price, they will go for it.”
Do you need to leave room for negotiation?
“Buyers will try to offer less but, if you know your business is priced correctly, you stay firm on your price,” said Zoran.
“Nobody will walk away from a good deal just because they didn’t get a discount. They’ll only walk away if they don’t think it’s a good deal. Pricing the business right is crucial.”
How do you know if the price is right?
“Imagine you are buying the business. Would you pay that price for it? If you say ‘yes’ immediately, you are under-priced. If you say ‘no’, you are over-priced. If the answer is ‘probably yes, but only after I do thorough investigation, analyse the busines and satisfy myself that the profits and operation of this business will continue after I buy it’, then you have priced it correctly,” said Zoran.
“Do this right and you will have a successful sale in a very short period of time.”
If you would like to find out more about this – or if you are selling your business or keen to buy - contact Zoran Sarabaca of Xcllusive Business Sales on 02-9871-3331 or 0410-654-114.
ABOUT THE AUTHOR
Vanessa is the CEO of Bsale Australia. She has been the managing director for the past 9 years. With extensive knowledge in online marketing and the business for sale industry. Vanessa is a huge supporter and advocate for small business in Australia.