For small businesses, setting a sale price involves numerous considerations. Owners usually have an intuitive feel for the value, but often the actual sales price is much less than ask. WHY?

Usually sellers listing a business ask more than the net asset (book) value of the business. Anything over book value is called goodwill, and it sits on the buyers balance sheet without being able to be depreciated.

I always prepare sellers for the possibility that the most qualified buyer is only willing to pay book value. If the financial statements are unaudited, and/or prepared internally, it is almost impossible for a buyer to discern the reliability and veracity of the statements.

Sellers often market the potential of the business as a reason to pay over book value. There may be potential but most sellers do not pay for potential, that is their upside, not the sellers. If the buyer wants to be paid on this basis they should harvest the potential and list for more money.

Sometimes sellers are under distress (health, finances, etc) and buyers sense this – resulting in a low offer. This is one reason in business brokerage that we have a minimum commission agreement. I remember one sale in which the seller was heavily in debt, and he sold for $1.00 just to have someone assume his debts. The broker had a commission agreement stipulating a 10% commission. He received $.10 commission and had to split 50/50 with another broker.

Your best bet is to start well in advance and sit down with a good business broker to have them review your documentation and situation. Call me at 647.274.5593 for a confidential discussion.