I hear this all the time: “Let’s put my business up for a higher price to test the market. We can always adjust the price later if we don’t get any takers.” That may not be the best strategy. Here’s why.
Selling a company is a much more complex and time-consuming transaction than selling a house. The real estate market – and buyers – are often driven by emotion; that’s why you see such wild fluctuations in demand and pricing. Owners generally sell only one company in their lifetime, so it might be natural for them to base their ideas on the experience they had with their home(s).
But the market for companies is driven strictly by data, numbers that can be verified and justified by the company’s performance. Pricing a company at 20% more than its actual value makes the seller (and the broker) look less than serious about selling. Some brokers will take the listing because they take a passive approach to their job; they’ll just wait along with the seller to see if the phone rings.
Lenders also know how to value companies, so even if a buyer comes along who’s willing to pay the inflated price, they’ll probably have trouble getting funding. That just wastes time for the owner, the buyer, and everyone involved in putting a deal together.
There are a couple of reasons we never take over-priced listings. One is that we know most of the interest in a company comes with the first appearance of the listing. We actively market it to create some buzz. But a listing that’s not priced right will sit until it becomes stale; it may never get a serious offer. Smart buyers, unlike more emotional home buyers, won’t return to take another look. They will have moved on to a company that’s priced correctly.
Another reason we don’t take on companies that aren’t priced right is that we’re in the business of selling companies, not just listing them. We invest our own money in actively marketing to our database of serious and qualified buyers. We’re taking on risk in the transaction, so we want to make sure we’re taking on the right company at the right price.
Our reputation with buyers and lenders is based on our ability to estimate the market value of a company and put together a deal that works for both parties. We don’t risk our reputation by inflating the numbers based on wishful thinking. It’s critical that buyers and lenders trust us to stand by our analysis of value and the reliability of our comparable data.
Experienced brokers don’t need to “test the market.” We sell companies daily, so we have tested the market dozens of times yearly. If you’re serious about selling your business, the best way to do it is to partner with a broker who knows your industry and has a proven track record of selling companies at top (actual) value.
If you are curious about what your business is worth, we offer a complimentary and confidential opinion of value.
