Depends who you ask! If you ask the seller, you might hear that the asking price is too low. But ask the buyer and you will likely hear that the asking price is too high. How can both be right?
Most sellers have a rough idea of what they want for their business, perhaps, based on their industry knowledge and sales of similar businesses. Maybe, however, the seller’s price is just based on how much they need to pay off debt, or their idea of an adequate retirement nest egg, or what they heard someone, somewhere had gotten for a similar business.
Often, sellers say that the asking price doesn’t really matter since they can always come down. What they don’t realize is that if the price is unrealistic, buyers won’t even look. Buyers know they can make an offer, but if the starting point is way too high, what they consider a fair price may be so much lower, they won’t bother to even make an offer.
Sellers must always keep in mind that starting out with an excessive asking price may prevent a well qualified buyer from even taking a look at the business. You know your price is too high and that you will come down, perhaps even significantly; the buyer doesn’t. So, what is the right price? The ideal asking price is the highest price at which qualified buyers will still take a look at the business, but not so high they won’t. A business broker professional has tools to help sellers zero in on this price using a variety of methods: comparable market data based on similar sales, cash flow of the business, or using other business factors such as location, down payment requirements, competition, etc.
Ultimately, the marketplace will decide the final selling price and serious sellers should heed the marketplace. If the business is prepared for sale and adequately exposed to the market and the highest (or sometimes only) offer is $100,000, then the selling price will be $100,000. Of course, the seller doesn’t have to accept that price, but he (or she) must face the fact that the market will only pay $100,000 for their business.