Sunday, March 13, 2016

Why the right asking price is critical when trying to sell your small business - David C Barnett

Think you can just ask whatever you want and hope for the best?  You may be scaring off the exact buyer you need to meet.  Watch:

Hi, Everyone it’s David Barnett here from and my new exit planning I’ve got a question here today, it’s sort of a topic of discussion but it’s for business owners, when you sell you need to get the price right you’re asking price. Let me give an example. When I was a business broker for over three years I would get people all the time come in and they would say ‘’Hey want to sell my business’’ and I would say great the first thing I have to do is an evaluation and I would do what was called the most probable selling price evaluation. I still do them today for consulting clients. I would then come back with that business owner and would say look here are all the factors considered and this is here some examples of other people who’ve recently bought businesses like yours and this is what your business is going to sell for. Let’s say it was $275 000 and then the business owner would say no, my financial planner says that I need $500 000. Never thinking that what they need has actually nothing to do with what the business is worth. So then I would explain to them you know what you need has got nothing to do with what it’s worth. If you need more money then maybe you can’t afford to retire right now maybe you need to keep operating the business.

Now here’s the problem, some business brokers would say to the person ok you want $500 000 let’s ask $550. Now it’s a business worth $275 and it has an asking price of $550 I wouldn’t take those listings when I was operating my brokerage I would tell them, you know what you can list it for $325 or I don’t want the listing. Here’s why when you over-price a business and you try to get way more than what the business is actually worth. What the cash flow will support, what happens is you miss out on what I call the reasonable buyers. The reasonable buyers are people who are thinking people, who’ve educated themselves maybe they’ve even taken my program and they know what a business should be worth. And if they see a business that’s worth $275 000 with an asking price of $310 they know that’s there’s a negotiation going to take place. They know the seller has left the room for a back and forth negotiation. That’s fine.

The reasonable buyer is going to make an offer; discuss with the seller they’re going to pursue that opportunity. When a reasonable buyer sees someone with a $275 000 business who’s asking $550 000. What they think is that person who’s selling has no idea what they’re doing and they would be right. And they believe that the seller is not unreasonable person. And they know that it’s difficult to negotiate or have any kind of reasonable relationship with an unreasonable person. And so what they end up doing is he might watch the business or wait for the price to come down but they don’t engage with the seller. And so what ends up happening is that seller who’s got the crazy over inflated price never gets to meet the reasonable buyers but you know who he does get to meet?

The unreasonable buyers and what I mean by unreasonable are the people out there who are just low balling everyone trying to get a fish to bite the hook to take the bait, so to speak. so unreasonable buyer is someone who goes into the market and simply bids way low on everything hoping to find a desperate seller, who is willing to talk to anybody so the unreasonable buyers if they see you know a business that might be worth $275 with an asking price of $310. They may come in an offer of $150 or $200 but that’s okay, because that seller is also talking to reasonable buyer’s so they don’t need to take the bait.

The unreasonable seller who’s asking $550 that unreasonable buyers still going to come in and low ball at $150 or $200 and that’s the only kind of buyer the unreasonable seller is going to meet and he’s going to spend all this time talking with these guys and some of them have money and some of them don’t. Some of them are just tire kickers and some of them are just wasting your time. The reasonable buyer is the personal with money and purpose and motivation and drive and they have sound thinking.  And they’ve educated themselves. They’re not going to pay double of what a business is worth. They just won’t, that’s why as a seller it’s important to get proper advice on what your business is actually worth, before you put asking price on it.

I do most probable selling price evaluations today for my clients around the world and be more than happy to do it for you. So if you’re thinking about selling a business you need at the price right and you need to work with someone who can help you set the proper price and show you why your business is worth what it’s worth so that you can have that intelligent conversation with a potential buyer that comes along, and hopefully it’s reasonable buyer with money and purpose and motivation and desire.

Anyway thanks a lot and we’ll talk to you later. Don’t forget to go to my website sign up for my email list everyone on my email as guests to enjoy my videos before everyone else. Thank and we’ll talk to you next time. You made it to the end of the video. That’s great. Don’t forget, sign up for my email list it’s right down here under the welcome video. Thanks and we’ll see you next time.

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