The current economic climate has not been kind to those looking to sell their business or commercial property. We interact with business owners every day that want to sell their businesses and don’t understand why they are not successful. In this market it really boils down to one thing: Your business is only worth what someone is willing to pay for it.
How to find the value:
Many people out in the market to get into business have no idea on how to value your business. More likely than not, they are going to start out with a price range in mind and see what fits into that range. Many that have been looking for a long time know what typical asking prices are and will avoid an overpriced listing. There are many out there right now that have been looking for a long time just waiting to find the right deal. These are the peopel we are looking to connect to.
We use several methods to value a current business. Most often used is a Cap Rate which measures the ratio of net operating income and the purchase price of the asset. Think of it as the interest rate that you get for the investment. The cap rate expected varies greatly from business to business depending on how involved the owner needs to be. Generally speaking, an 8% cap rate is a minimum return that an owner would expect.
We also use a replacement value to determine value. In today’s market it is almost always much greater than the real street value of the business. It does provide some basis however when considering the assets of the business as part of the value.
In some businesses, buyers use a multiple of gross sales as a rule of thumb for valuation. This method can be used as well to give us another possible way to weight the overall valuation.
Many times business owners object saying that they have “X” amount into it. While this is a valid point and important in motivating the buyer to make the purchase, the investment is a lot like buying stocks. If the price of the stock goes down, you can’t expect someone to pay you the value from where you paid for it.
According to Bizbuysell.com, only 1,117 business in the US sold in the 3rd quarter of 2010. In 2009 that number was 1,462. That’s less than 23 sales per state in the country. Pricing the business is more important than ever.
Another concern is financing. Getting a bank to finance businesses without many physical assets has gotten very rare. More and more, owner financing is being turned to to get these deals completed. When combined with the right price, this can get your business sold much more quickly.
Keep in mind the reason you want to sell your business in the first place. What does the business not selling mean to your life and how will that affect your future plans. The market is still uncertain and waiting for a better price may be a much longer wait than you think. What would happen if the value decreased next year by 20%? Be sure to weight your options carefully and keep your end goals in mind.
The business sales specialists at RE/MAX Commercial Group are here to help. With years of experience in commercial property and business sales, we have the resources to make your sale a reality. You can see our curret businesses for sale at www.RCGmichigan.com. Call today for a free confidential consultation at 517-321-2800