Simplified Small Business Valuation Guide Helps Entrepreneurs Sell A Business For The Best Price

Oct. 26, 2010 - PRLog -- When it comes to buying and selling a small business in this country we have a big problem. Most small businesses put up for sale in the US never sell and 90% of people who respond to business for sale ads never buy.

The overriding reason for all this abject failure is that both buyers and sellers have no clue about how to realistically value a small business.

Not knowing where to begin, most sellers develop their asking price based on the things that mean the most to them: how much money they need for retirement or how much they need to get out of debt. Or worst of all, they base their price on a rumor of what a similar business across town sold for.

These types of valuations make no sense to the buyer and as a result the two sides never strike a deal. Thousands of profitable, attractive businesses remain unsold.
In response Pat Jennings, who founded TheBizSeller.com in 1999, has published “The Simplified Small Business Valuation Guide”. Written specifically for owner-managed businesses with sales under $1,000,000, the guide is now available for free at TheBizSeller.com.

Business valuation is the source of more misunderstanding and frustration than any other element of the selling process.

There are guidelines, rules-of-thumb, methods, multiples, evaluations and a nonstop stream of expert advice, but there is no single accepted method that will work for every company and every situation.

“Brokers and appraisers love the fact that the valuation process is shrouded in mystery,” states Jennings. “They’d like business owners to think you need an MBA from an Ivy League school in order to value a company. As long as business owners believe this, they will remain dependent on the brokers, appraisers and other high paid advisors.”

But the truth is, when it comes to pricing a business that is about to be put up for sale, the valuation process is rather simple  – the buyer will pay a price that they believe will give them a good return on their investment and they will estimate that return based on the business’ actual, recent profits.”

If buyer and seller can simply focus on the proven earnings of the company they can eliminate 90% of the conflicts, emotions and guesswork that obstruct small business sales.

Jennings goes on to state that sellers make two critical mistakes when valuing their business. First, they completely overlook the importance of the financing terms. All cash deals are rare - most small businesses are financed by the seller. Usually it is the financing terms that make or break a deal, not the initial asking price.

Secondly, sellers try to find a single perfect dollar amount that represents the true value of their business. Instead they should focus on developing a price range.

“No one is smart enough to know exactly what a business should or will sell for” say Jennings. “Sellers tend to put all this pressure on themselves, thinking they have one shot to come up with the perfect price. Too low and they will leave money on the table. Too high and the buyers will laugh at their cluelessness.”

“The Simplified Small Business Valuation Guide” helps sellers determine a price range based on the proven earnings of the business adjusted for a set of variables. Once the seller has this price range –a price range that can be explained and justified to a buyer – then he or she can actually get the business on the market.

The valuation process is not supposed to lead the seller to a single figure that is set in stone but is simply a way to find out where the price negotiations should begin.

Ultimately, the number of interested and qualified buyers, along with the financing terms, will determine the actual selling price. Once buyer and seller realize this the entire process will be easier and success more likely.

The “Simplified Small Business Valuation Guide” can be viewed at: http://www.thebizseller.com/TheBizSeller_Valuation_Report...

# # #

About TheBizSeller.com : Since 1999 TheBizSeller.com has been the only business for sale web site that is exclusively “For-Sale-By-Owner”. We offer a system developed especially for smaller, owner-managed companies that guarantees the seller will never pay a 12% broker’s commission. Our system will work for you even if you have never sold a business before and don't know where to begin. To learn more go to: http://www.TheBizSeller.com/sellinfo.htm