The significance of correct price positioning of a business for sale is critical, particularly when a business is first listed. But no generic method of determining value exists, as it’s an individualistic perception. Not surprisingly then, there is no real formula for getting an asking price exactly right either.
Understanding the most appropriate pricing strategy is becoming increasingly important for those selling a business today as buyers investing in business on the Sunshine Coast are seemingly more price, or rather more “value sensitive”, than in past years. They are generally more educated due to increased awareness brought about by the internet. What is clear, however, is that how much a business sells for is what a buyer and a seller agree on. This can be difficult if few buyers are inquiring about a particular business or they perceive it to be priced too high and communicating a greater value than the business has. Consequently, businesses that sell quickly are those that are priced correctly in the market and attract genuine buyers who can see value at that level. The timing of when a business becomes priced correctly to meet the market is also an important variable.
Correct price positioning should be done sooner rather than later: in other words, when the business is placed on the market. Why? If a business is not priced correctly, potential buyers will not consider it because it is outside their parameters for value and they will buy elsewhere. It doesn’t matter what type of business or level of investment, whether it is $30,000 or $1 million, whether it’s an entry-level business with low profits or a large business enterprise with healthy returns in the hundreds of thousands of dollars. A well price-positioned business will sell quickly. This can be seen time and again.
Recently, we had a client who sat on the asking price for more than 12 months. The client eventually dropped the price to meet the market and the business sold in a few days. Meanwhile, another more expensive business that was priced correctly from the start sold within days of listing. It doesn’t matter what sort of business it is, meeting the market is what’s critical.
I’m not saying here that cheaper businesses are easier to sell. Far from it. It’s the perceived value that needs to be in line with client demand. On the Sunshine Coast, there is strong demand for businesses that provide owners with consistently high returns, sustainable earnings and have all their ducks in a row. At the other end of the scale, there is strong demand for established, entry-level-type businesses with lower profit levels.
The message for potential sellers of businesses here is to carefully discuss your pricing strategy with your business broker before you go to market.
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