How To Price Your Business For Sale Competitively

Selling a business that was built with a lot of hard work and passion can be overwhelming for the owner. However, it gives them the surety that they are handing it over to a responsible leader who will take it to new heights.

Selling a business is the perfect way to end your commitment and dedication to the venture and reap the benefits of your lifelong efforts. The profits earned from the sale can be utilised to live a luxurious retired life and fulfil material dreams.

However, generating an excellent return on investment requires selling the business at the best price, which is neither too high nor too low. Entrepreneurs may not be able to determine the right price because they are emotionally and financially invested in the entity. They must look at all parameters like the location, financial history, projected sales and debts before setting the price.

Here is how they can price the business for sale competitively. It can help them to get the maximum rewards for their struggle.

1. Identify the Value of Assets

When entrepreneurs decide to sell business online, they have to mention the asking price in the business listing. They cannot use their discretion to set the price tag and must use different metrics to calculate the market value of the entity. One of the common practices to determine the value is adding the cost of all the business assets.

This method is known as the asset-based approach to business valuation. The formula for this calculation is as follows: Business Value = Total Assets – Total Liabilities. However, this does not help ascertain the correct market value because most entities have intangible assets like goodwill that are ignored.

2. Market Trends for Business Valuation

Business owners who do not want to dig deep into calculations and financial assessments can take the easy way out. They can identify the sales prices of similar businesses in their location to set the asking price for their business. This is known as comparative pricing, which is based on market comparison.

Entrepreneurs must consider their geographical location and market share while determining the price. They must consult business brokers and check the latest business listings in the same location to set the price competitively.      

3. Use the Revenue to Determine the Price

Some entrepreneurs who plan to sell business online use the revenue-based approach for valuation. The times revenue method involves multiplying the business’s revenue by a specific number to calculate its future profits. The multiple is based on the current economy, industry type, and market trends. It can be double, the same, or lower than the current revenue.

It helps determine the highest possible price for the business and can be used to compare prices with similar businesses. It helps to identify the worth of the business based on its profitability. The method does not provide the appropriate value of the entity and must be validated by using other methods.

4. Find the Discounted Cash Flow Analysis

The discounted cash flow business valuation method determines the price by identifying the entity’s future cash flow, which is determined using a projected discount rate. It aims to set the price for the business by understanding the income it will generate in the future.

Buyers can also use this method to check whether the business’s pricing is correct. It helps them identify whether buying the business is a viable investment or not because it keeps the future cash flow in mind.

5. Check the Earnings Multiples

The earnings multiples business valuation method is another way to price the entity when you wish to sell business online. It involves comparing the current share price of the venture to its earnings per share. Thus, it is also known as the price-to-earnings ratio. It compares the share price of the business to other similar entities.

This valuation is based on the approach that prices of assets owned by similar businesses sell at comparable prices. It is easy and quick to use this method because it does not need complex calculations or formulae.

6. How to Determine the Price of the Business

Entrepreneurs must use all the methods to identify the price range and set the amount accordingly. They should also focus on intangible assets like unique selling proposition, brand popularity, and reputation. The financial health of the business and its future profitability are also needed to make the right calculations.

Setting the right price requires the assistance of an accountant and business broker. They should use the latest trends in business valuations to stay on the right track.

It is vital to add a few thousand dollars to the price to keep room for negotiations and increase the return on investment. However, do not price it too high because it can turn away potential buyers. It is vital to improve the value of the business to get a good price by boosting its profits and reducing expenses.

Wrapping Up

Whenever you decide to sell business online, you will have to set the asking price. Make sure you determine the price using different valuation methods to avoid making a mistake and relying on only one parameter. Broadening the horizon is vital to arriving at the right amount.