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Forget The Asking Price of A Business For Sale!!
By Richard Parker, President of The Business
For Sale Buyer Resource Center™ and author of
the most widely used reference resource and
strategy guide for buying a business for sale –
How To Buy A Good Business At A Great Price©
There's a popular saying regarding the asking
price of any business for sale: “a business is
overpriced the day it's listed for sale.”
Experience shows, there's more truth than
fiction to this statement.
The asking price has nothing to do with the
purchase price. Good negotiating skills and
creative deal-making is what gets a deal done!
So, when looking at listings, don't get
discouraged by what they're asking. After all,
if you do this right, that's not what you're
going to be paying... right?
It's easy to understand the seller's desire
to price a business higher than what the market
will bear.
Most Sellers Have an Emotional
Attachment to Their Business
Sellers generally do not receive any
professional input when establishing their
selling price. They typically price the business
based upon what they think it is "worth", or
what they "need" to get out but this in no way
reflects what the real value is.
Every seller wants to get the most money in
his or her pocket from the sale.
The challenge for a potential buyer is to
combat these issues with factual information in
order to acquire the business and achieve the
greatest possible return.
Both buyers and sellers must realize that
business valuations are very subjective. It's an
art, not a science. Both parties must also
realize that appropriate formulas for that
particular size and type business must be
applied. Of equal importance is that both
parties must recognize that it is only worth
what a buyer is willing to pay and what a seller
is willing to accept.
All of this sounds pretty basic and generic,
doesn't it? The difficulty, of course, is to
come to a common dollar figure. I've always felt
that every seller's value is too high and every
buyer's calculation is too low, and somewhere in
the middle lays an accurate valuation.
This Is a Down Payment Driven
Negotiation
Sellers usually have a fixed figure of what
they want to walk away with in their pocket.
That is why the down payment is quite often more
important than the actual purchase price. I have
been involved in countless transactions on
behalf of buyers when we've offered to meet the
down payment requirements in exchange for a
massive reduction in the total purchase price or
have received incredible concessions on the
balance of sale note (zero interest for one
year, extended terms, etc.).
When addressing the price in any negotiation,
ask the seller to outline how they arrived at
their price. If you do your research, you'll be
able to demonstrate an abundance of reasons why
they may be asking too much. Having said this,
there are certain sellers, highly motivated
ones, who price their business fairly. In these
cases, work on getting other concessions in the
deal in exchange for meeting their price.
Whenever you look at a business purchase,
keep in mind that EVERYTHING is negotiable,
especially the price. Use it as a barometer for
the seller's thought process. Don't allow the
asking price of any business within striking
distance be a deterrent to you. If it's the
right business for you, then solid negotiating
skills can adjust any seller's thinking.
There are times during every deal when there
are “deal breaker” issues on the table. Try not
to adopt this hard-line attitude and be
sensitive to conditions that the seller
classifies and “deal breakers”. I have found
that when the seller wants to sell, and the
buyer wants to buy, and the parties trust each
other then ANY issue can be resolved.
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