How are businesses priced?

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Generally, at the outset, a prospective seller will ask the intermediary or business broker what he or she thinks the business will sell for. The intermediary usually explains that a review of the financial information will be necessary before a price or a range of prices can be suggested for the business.

Most sellers have some idea about what they feel their business should sell for – and this is certainly taken into consideration. However, the intermediary is familiar with market conditions and, by reviewing the financial records of the business, can make a recommendation of what he or she feels the market will dictate. A value range is normally set with a low and high price. The more cash demanded by the seller, the lower the selling price; the smaller the cash requirements of the seller, the higher the price.

Since most business sales are at least partially seller-financed, the down payment and terms of the sale are very important. In many cases, how the sale of the business is structured is more important than the actual selling price of the business. Too many buyers make the mistake of being overly-concerned about the full price when the terms of the sale can make the difference between success and failure.

An oft-quoted anecdote may better illustrate this point: If you could buy a business that would provide you with more net profit than you thought possible even after subtracting the debt service (loan payments) to the seller, and you could purchase this business with a very small down payment, would you really care what the full price of the business was?

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The Calder Associates Team

www.calderassociatesasia.com

Experience – Knowledge – Ethics – Qualification