Misconceptions When Advertising a Business For Sale

Many business owners approach the process of selling a business as they would a piece of land or a building. The reality is that the process is much more convoluted and open to subjectivity for some parts of the sale. That being said, what is absolutely not subjective is the fact that a business is only worth what a buyer is willing to pay for it. Using the previous statement as a lense, the following article will examine some common misconceptions when advertising a small business for sale.

Accountant advised that the business was worth X
While accountants can be a valuable resource to assist you sell your business, not all professional accountants are well versed with the principles of business valuation. Accounting book value differs significantly from market value and using accounting standards alone to assign a business value can be an erroneous methodology. The ideal person you should turn to is a chartered business valuator (CBV). A CBV in Canada is a professional that specializes in the art and science of valuing a business. Many times they are accountants with additional training, but not always. You can also turn to an experienced business broker for their input. Business brokers talk to business buyers and sellers everyday and have a keen sense of where the market is.

List the business at a high price and expect buyers to negotiate it down
A common strategy with business owners is to list their business for sale and expect buyers to offer a price that will be equal or greater than market price. This is a flawed strategy. If a business is overpriced then many buyers in the market to buy simply will not even call to inquire about it. The listing will miss out on all of the prospective buyers that would have called at a more reasonable price but decided against it at the higher level. The much better strategy is to list a business at closer to market levels and generate a higher level of interest from the outset.

Thinking that selling a business is a waiting game
Some business sellers believe that it is only a matter of time until their business sells. This could not be further from the truth. The main drivers behind the sale of a business is having a company that is profitable, where the goodwill is transferable and one that is priced properly. Time really has nothing to do with it. Quite the contrary. If a business for sale is overpriced it will usually languish on the market and the listing will most certainly get stale. The Toronto, Ontario marketplace is a good example of one where many businesses are listed privately at completely unreasonable price expectations.

Have unclaimed cash sales counted towards revenue
If a business is on the market and has significant unclaimed cash sales, these businesses are very difficult to sell. Buyers typically do not accept the cash sales as verified revenues and it raised many questions about the ethics of the seller. Banks also will not accept undeclared sales so it makes acquisition financing more difficult to obtain.

The above points are only a few examples of some misconceptions present with business owners thinking of selling their businesses. Talk to your accountant, lawyer or a reputable business brokerage about assistance with the sale.