Whether it was the plan all along or you simply made the decision because it made sense, selling your business is a very big deal. You always want to get the best price possible when you sell something, but when it comes to a business, this is especially the case. An error in appraising your business could cost you substantially, both in terms of money and all the blood, sweat and tears you put into it. So never consider a price until you think about the following.
Why Everyone Should Consider This Question
You may think this post has nothing for you as you have no plans to sell your business. Maybe you love it so much you couldn’t imagine parting ways. Well, I’d still encourage you to keep reading. The following should at least help you understand if you even could sell your business. If the answer is no, you have some work to do.
A business you can’t sell, at best, is just a very high paying job. If no one’s willing to pay for it, it has no value. This could be an especially punishing truth to face when you hope to retire.
One Simple Equation
Fortunately, figuring out an appropriate price doesn’t need to be too difficult. Many experts actually recommend a simple equation to get there. You simply multiply your earnings before interest, taxes, depreciation and amortization by two.
However, depending on the industry you’re in, you may multiply it by more or less. “Two” is generally a good recommendation as it’s to recommend how many years the new owner will need to dedicate to the business. There’s no standard here, meaning it will largely come down to a judgment call on your part.
Put It on the Market
Even if you decide to do the above, it’s never a bad idea to simply test the market. Thanks to social media and the Internet at large, you have countless options for letting people know you want to sell your business. It’s not like you’re under any obligation to actually go through with the sale. Plus, if you use a broker to represent you, there won’t be any consequences for considering this route.
By doing this, you’ll get a better idea for what people are willing to pay. Obviously, you have to know that the majority of offers are designed to come in low and, until someone is actually entering into negotiations, not every number you receive is going to be serious. Also, I still recommend doing the above first so you at least have some reference to judge the offers by. Otherwise, if all you get is low-balls, even selecting the most generous one will be a mistake.
Don’t Sell Until It Makes Sense
I also want to caution against selling before it makes sense. Many people sell their businesses to handle debts or prepare for upcoming expenses. However, you’re at a huge disadvantage this way, especially if a potential buyer finds out. Do everything you can to improve your position so you only have to entertain serious offers. Otherwise, you may regret selling your business when it’s too late.
Feel free to contact me if you want help evaluating your business’ worth. As a third party, I can help you achieve peace of mind throughout the process.