Recent studies indicate that the average business takes 8-12 months to sell. While this may seem like a long time to a business owner, this is the best-case scenario. Unfortunately, businesses that are overpriced in the beginning often take longer than average to sell. Even if your business is appropriately priced, having unreasonable or undesirable terms can also ward off potential buyers.
There are a variety of factors that go into pricing a business correctly. Seller’s discretionary earnings are often used to price a small business. Seller’s discretionary earnings are the earning of a business before the following items:
- Income taxes
- Nonrecurring income and expenses
- Non-operating income and expenses
- Depreciation and amortization
- Interest expense or income
- Owner’s total compensation for one owner/operator, after adjusting the total compensation of all other owners to market value
Once a seller’s discretionary earnings are calculated, a multiplier is added to account for a variety of factors such as seller’s terms, market competition, business risk, industry growth trends, business location and facility, desirability of the business, and type of business. Terms such as a reasonable down payment with the seller carrying the balance can go a long way towards closing a deal.
In addition to appropriate pricing and desirable terms, business sellers can reduce time on the market by being prepared for buyer questions. Buyers expect to be able to quickly review copies of the following:
- Copies of financials from the last 3 years
- A copy of the lease and any assignments lease from previous sales
- List of fixtures and equipment
- Copy of franchise agreement
- Existing marketing materials
Business brokers have long been aware that reasonable prices and terms are necessary if sellers are serious about selling their businesses in a reasonable amount of time. At Regal Consulting Corp., our professional team of business brokers has years of experience helping clients sell businesses in New Jersey, Pennsylvania, New York, and Connecticut. Our expertise, integrity, and marketing tools ensure we price your business appropriately, identify a qualified buyer, and close the deal. Call us today and we can begin with a thorough business valuation and exit plan.
Regal Consulting Corp. – Serving New Jersey, Pennsylvania, New York, and Connecticut