How Do You Know You're Being Offered A Fair Price For Your Business?

While being an entrepreneur can bring innumerable financial and personal benefits to your life, it can also leave you feeling tethered to your business--unable to take a vacation or even just a day off without being bombarded with questions and issues to resolve. If you've owned a business for years, you may be considering getting away from the daily grind and selling to a new owner. You'll then be able to use these proceeds to retire early, invest in another business, or even just add to your savings as you go back to working a full-time or part-time job. However, putting a value on your hard work, sweat, and tears can be a challenge for any business owner, and you may wonder where to begin. Read on to learn more about how businesses are valued and what you should consider before selling your business. 

How are businesses generally valued? 

There are a number of real estate and brokerage firms that are in the business of valuing businesses, using comparable recent sales and other data to get a rough estimate of how much your business may be worth, then factoring in the unique factors that make your business special -- like a sizable customer base, a desirable location on a busy highway, or free parking.

In addition to tangible factors like your gross sales volume, square footage, number of employees, or other discrete figures, your business's estimated value can vary a bit based on the strength of the market. In a strong market where houses are selling for above asking price just a day or two after being put on the market, you may find this real estate euphoria spreads to business purchases as well, especially if your business has a fairly broad customer appeal.

On the other hand, selling a niche business like a comic book store in a relatively low-population town or trying to sell any business during a recession can be tougher simply due to the lower volume of potential buyers. If this is the case, you may need to consider reducing your asking price to improve the odds of a quick sale.

What should you consider when selling your business?

Once you've gotten an idea of the fair market value of your business, you'll be in a much stronger position to negotiate any offers you may receive. However, you may need to adjust your expected asking price based on the speed wit which you want to sell your business. Because businesses that languish on the market for a long period of time can arouse concerns among cautious potential buyers or cause gossip among your employees who know you are planning to sell, setting a price point that 's sure to get some action quickly is key.

Contact local business valuation services to learn more.