How to set the selling price of your business?

How do I determine what my business is really worth? This is a question I get asked a lot.

In reality and sincerely, your business is worth the price that a buyer will be willing to pay on the market. But determining that ideal price is far from easy.

There are many different financial valuation methods, ranging from asset-based approaches, to current business performance, to future results-based approaches. Of course, no single approach can be used in isolation: the current market, economic trends and similar transactions in your industry must also be considered.

Before you look for a buyer, you should ideally have an expert financial evaluation. Although legally anyone can do a financial appraisal, a professionally done financial appraisal will be viewed more favorably by potential buyers and can save you legal hassles later on.

But be careful, the financial evaluation is not the selling price of your company.
The financial evaluation gives the minimum value of the company on its market. It is up to you to set this selling price based on multiple internal and external factors.

Here are some tips on how to set this price.

Check your accounting data. For example, make sure that your real assets correspond to your accounting assets. If not, you will have to restate these assets and draw up a balance sheet taking into account the true value of these assets. Also think about checking if your tax result has not been too much reduced to pay less taxes. It is legitimate to want to reduce your tax bill but counterproductive when you want to sell a company.
Look around. Try to find the sale price of similar businesses that have sold in the area. This will help you get a general idea of valuations in your area.

It is possible that you will find significant differences in valuation for the same type of company. In this case, determine a high and low range. Try to place your company in the middle of the range for an initial valuation.
Do not hesitate to ask companies if they have an estimate of the value of their business.

Check everything. Make sure you have accounted for all income and expenses. Have you accounted for all the income of the business, including income not shown in the accounts? Have you acquired any assets privately that are not reflected in the accounts? Or have you charged private expenses to the accounts that reduce earnings? Are there amounts that were not privately received?
Think about non-financial valuation criteria. In particular, criteria such as location, age and general reputation of the company. These can significantly alter the value of the business.

Review your analysis. Compare the assets, earnings and expenses of similar companies to the data you have calculated. Make sure that your sales are growing consistently and that your assets are similar in value to the assets of companies in your market. If, for example, you have higher material costs than a competitor with the same revenue, ask yourself.
Think about the details that influence the sale. The devil is in the details, isn’t that what they say? The details of the business sale will affect the numbers you produce, whether you are a buyer or a seller. Various elements can increase or decrease the price a buyer is willing to pay. These elements are sometimes very surprising. Here are a few comments from buyers in no particular order: company premises in poor condition, never or hardly cleaned, offices in disarray, uncertainty about the renewal of the lease, staff too old, risk of soil pollution, poor atmosphere in the company, high rate of customer disputes, etc.

Master the difference between cash and credit prices. A seller who demands a cash sale will ask for a lower final price than he or she is willing to accept with seller credit. Similarly, a buyer who offers a very fast, no-financing cash payment can probably negotiate a lower price.