Establishing a Fair Price for Your Private Small Business: A Comprehensive Guide
Setting a value for a private company markedly differs from pricing a publicly-traded company. The most notable difference lies in the fact that private companies typically do not maintain audited financial statements. This article aims to guide private business owners on setting a fair and reasonable price for their enterprises.
Audited financial statements can be expensive to produce, which is why many companies choose not to go public. Notably, publicly traded companies, by definition, provide much more financial transparency than private firms. Public companies are viewed as more open, while private businesses are often seen as enigmatic.
For private business owners aiming to sell their companies, addressing the lack of public financial data is essential. Providing potential buyers with as much verified business information as possible can efficiently alleviate buyer concerns. Engaging your accountant to scrutinize the figures and develop a clear presentation for potential buyers is a practical step that can pacify most worries.
Collaborating with your accountant is merely the first stage in offering prospective buyers the data they require for reassurance. The second stage involves engaging an external appraiser or another expert to assess your business’s value. Subsequently, you should establish your market price and your “wish price”—the ideal price you aspire to achieve. It’s also crucial to know your “rock bottom” price—the absolute minimum acceptable price. Being armed with this information can significantly streamline all negotiation processes.
When prospective buyers evaluate your business to determine a fair price, they’ll consider a wide array of factors:
- Product Diversity
- Size of your customer base
- Potential local competitors
- Emerging competition
- Possible business disruptions, like supplier issues
- Stability of your earnings
- Market stability
- Capital requirements
Although different buyers may prioritize certain factors differently, you can rest assured that all these areas will undergo thorough scrutiny. Given the complexity of the process, the importance of professional assistance cannot be overstated.
Ultimately, the market dictates your business’s sale price. For business owners, the preliminary and most crucial step is to collaborate closely with professionals such as accountants, appraisers, Business Brokers, and M&A Advisors to establish your private business’s price. You can rely on brokerage professionals to properly collate and present the facts and figures that justify that price.
