by: Kathryn Turpin
If you have developed a successful business, you may at some point consider selling that business to pursue other things: perhaps starting a new business – or maybe exploring the Caribbean!
How do you determine the selling price for your business? Knowing how much your business is worth is not easy.
Keep in mind that the right selling price is simply the price that a willing and able purchaser will pay for your business. Market conditions, such as the availability of financing or the number of other businesses for sale, can easily impact the purchase price. Business owners typically overvalue their business, so we suggest that you listen to your advisor’s advice, that you set realistic expectations and that you be prepared to accept less than what you think your business is worth.
We also recommend that you consider how long you are willing to wait for a sale. If you wait too long to get 100% of the selling price, you risk that the value of the business may drop – from market or other changes.
Here are a few strategies to determine the right selling price for your business:
Contact a business broker
Business brokers are typically hired by a seller to help sell the business, which includes finding suitable purchasers. They also generally help put together the deal between the buyer and the seller. A good business broker should be able to give you an appropriate range for the selling price of your business. We suggest that you spend the time to find a business broker with a known reputation or who is referred to you. It may surprise you to learn that, in Texas, business brokers (like business appraisers) are not required to be licensed.
Hire a business appraiser
Another option is to hire a business valuation expert or appraiser who can appraise your business, providing you with a formal valuation. You can expect that such an appraisal will cost a few thousand dollars, but it might provide you with a good starting point for determining the selling price for your business. Not all business appraisers are skilled in all business industries, so you will want to make sure that the business appraiser you select has experience in your industry. Also, keep in mind that a business appraiser will not assist you with locating a willing purchaser of your business.
Hire a real estate agent
If the business owns any real property and you intend to transfer the property with the business, an experienced real estate agent will be able to help you determine a fair selling valuation for the real property, assisting with the transfer of that real property. The transfer of real property involves many details separate and apart from the transfer of other assets of a business.
Call your accountant
A final option is to contact your accountant (and if you do not have an accountant, now is the time to get one!). He or she may be able to determine an approximate range for the right listing price for your business, using established metrics or formulae.
Our final comment to you on this topic: there are other ways to derive value from your business apart from the sales price. For example, the purchaser of your business may want to hire you as an employee or a consultant on a full- or part-time basis to help run the business for a period of time.
However you go about it, good luck!
About the Author
Kathryn L. Turpin has been a business attorney for more than 30 years and is licensed to practice law in both California and Texas. Kathryn’s practice focuses on assisting small- to medium-sized businesses with all aspects of operating a business, including formation, reorganization, drafting and negotiating all types of service or commercial agreements, and buying and selling businesses. Kathryn is with The Fowler Law Firm in Austin, Texas.