How to make a fair offer for a business
It is not at all uncommon for a business owner to have an exaggerated opinion of the fair market value of their business. In most instances, the owner understandably has developed an emotional perspective. It is also common for a business owner to have become comfortable with the risks associated with their business. Prospective buyers have a fresh perspective of these risks and commonly discount the value of businesses accordingly.
As a business Buyer, working with a business appraiser can be very beneficial. When used properly, a valuation can be a powerful decision making and effective negotiating tool. In much the same way that your broker will pre-qualify prospective sellers, a valuation can effectively pre-qualify a business prior to making an offer to purchase. A pre-offer valuation offers several benefits to you and your broker as well as to the prospective seller. First and foremost, it can assist in establishing a realistic selling price for a proposed transaction. The emotional component of the transaction can be reduced by an unbiased third party valuation.
A qualified business appraiser will calculate the value of a business from a purely objective point of view. This allows both you and your broker to utilize your time more effectively. A valuation can limit unrealistic expectations by providing a "reality check". From the perspective of the purchaser, third party valuations add credibility to the negotiation process.
In the absence of a third party valuation, you may not have an accurate opinion of the selling price of a business or be able to determine whether or not it is realistic. By seeing that the proposed price is in line with recent sales of comparable businesses, the anxiety level of both parties may be reduced. At the same time, the purchaser's confidence level in the negotiation process is enhanced, as is the likelihood of the transaction being financed by a third party and eventually consummated. The net effect of utilizing a valuation as a decision making tool is a more efficient use of resources by all parties concerned, a lower level of subjectivity and often a shorter negotiation process for the business. The cost of these decision-making tools generally range from $1,000 to $10,000.
Business appraisers can adapt the valuation process to suit your particular needs. Most can prepare limited scope or summary valuation reports designed save time and money. These tools often fulfill the requirement of supporting the proposed transaction and assist with closing your transaction at a fair price.
In today's competitive marketplace, it is important that business people utilize their resources as effectively as possible while avoiding costly mistakes. Business buyers, sellers, appraisers, lenders and brokers ultimately work toward a common goal, even if it is from different perspectives. Through years of experience we have refined an effective system of managing the purchase process for you. From the day you retain us until the day you close your deal, you will be able to focus on buying your business, not learning how it's done. We get business transactions closed smoothly, quietly, and for the right price.