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Selling Your Business: What's Your Business Worth?

Business owners are prone to making some fundemental mistakes when determining the value of their business, suggests Tony Arena, Managing Director of BCI Business Broking.  EWO Consulting, in conjunction with BCI Business Brokers can help you determine an accurate value for your business and to increase its sale price.

"Over the years of dealing with thousands of business sales there is one common mistake that business owners make when valuing their business. 
 
Pick up any textbook and you will find a range of business valuation methods.  We will show you a number of these in our workbook series being launched in May 2006. It covers both asset-based and profit-based methods.  However, you must keep in mind all of these methods are only theoretical estimations. 

The true value of a business is what buyers will actually pay for it.  This is referred to as market value.  When there is a difference between theoretical value and market value, market value wins out."

Getting a High Business Sale Price Requires a Shift in Perspective

From the first moment you start to think about selling your business you need to shift your perspective and look at your business from the buyer’s perspective.  That’s the trick to getting an accurate fix on the true value of your business. 

You can have all the theoretical valuations that money can buy, however they aren’t worth the paper they are written on unless they relate to a price that can be achieved in the market place at that particular point in time.  The closer your asking price is to the market price the quicker the business will sell. This is the key. If you leave the business on the market too long, it will get a bad name even though all that was wrong with it was that it was too dear.

Pricing can be as simple as this, or it can be a complex written report. In any event, it is an approximation of what the business might bring in the marketplace. Obviously the final price is a mixture of many factors such as the terms of the sale, the desire of the buyer to buy and the motivation of the seller to sell.

The challenge is that many people who value businesses have no way of taking into account market value, because they are not in contact with the market. And be careful what you call “the market”. Some people read the Business For Sale columns in the local paper and value their business according to those prices. Well, very often those prices are way over the market and will only serve to mislead you on market price. And don’t listen to what someone says someone else got for his or her business. Often the price is overstated as a boast.

The only source of reliable data on market prices is the people who are actually executing the sales, that is, business brokers.  Business brokers do not usually hand over their hard earned knowledge for free.  You may like to consider signing an agency agreement and committing to a particular broker early in the process of selling your business.  That way you will have full access to the market knowledge and skills in preparing your business for sale."

Tony Arena has recently published as series of workbooks to help you maximise the sale value of your business.

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