How to set an asking price

So you’ve decided to sell your business - it’s been a hard decision but it’s time. You might be looking to move onto another venture or maybe leaving the market altogether. But one question probably has you stumped – how do you set an asking price for your heart and soul?

This is a business you’ve worked hard to build, and parting cannot be easy. To put a value on such a business is really not something you've considered in the past.

Don’t worry, you are not alone in this situation. Many business owners experience this similar issue – all documents, finances, staff are ready to go but when asked about price, there are crickets.

The price you settle on at the end will be entirely up to you but you may need some guidance to start you off. So we’ve listed three things to consider when looking at setting your asking price.

Let’s put aside emotions
As a small business owner, you may have worked very hard on your business to bring it to where it is. It is, after all, your brainchild. Forming an attachment to your business is normal but to be able to participate in a worthwhile negotiation process, you need to leave all emotions behind as they may work against you. To you, the business may be priceless and this can lead to an unrealistic asking price. A possible solution to help put aside your emotions is to speak to someone who can be objective, but at the same time someone you can trust. Ask for an objective and honest opinion from this person and go from there.

Value your assets
Now that you’ve put your emotions aside, let’s talk figures. Start by valuing your assets with the end goal to arrive at a ballpark figure. The easiest way to do this is to make a list of all the physical assets. Especially useful for small established businesses, you should look at the net realisable value of all the assets. This involves taking into account the age and depreciation of each asset. Getting the value of the assets can set you up with a realistic appreciation of the value of your business’ resources and arm you with the information needed to use a valuation method.

Your earnings multiples
Earnings… multiples… what? This may appear to be a complex concept but definitely one you should get closely acquainted with when selling your heart and soul. The earnings multiples is a common business valuation method and involves using a formula to value your business based on a multiple of net profits. More commonly known as the Price/Earnings ratio, this method will provide you with a representation of the value of the business divided by its post tax profits. An accountant can provide the multiple for your sector which can be used to calculate the earnings of your business. By multiplying your company’s profits with the ‘multiple’, you can make a more informed decision of a potential asking price.

By considering the above factors and ensuring you have real facts to determine the value of your business, you will be well on your way to set a reasonable asking price. Have you got your listing on our website? Click here to get started.