Your exit plan is in place, business valuation is complete, marketing materials prepared, and your sale listing has been published. So why has there been so little interest in your business from potential buyers? Engagement on your listing is low, even though it’s been on the open market for weeks. You imagined people would be clamouring to buy your business. Could your asking price be scaring buyers away?
When buyers perceive your asking price to be unrealistic, it puts them off making contact. Price your business too high, and it could be judged as expensive and unattainable, too low, and it might set off warning bells or come across as desperate, leading to cheeky offers.
In this blog, we consider the factors involved in setting a business asking price on the open market, assess the pros and cons of different pricing options, plus the benefits of obtaining a professional business valuation.
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Perception plays a critical role in business value, and can be influenced by sector, size, audience and budget. For example, a buyer who is looking to purchase in a specific sector may perceive businesses in that sector to be worth more due to the potential value they represent to them.
Then there is the psychology of numbers. In the UK, we’re used to seeing goods priced at 99p because this price feels more manageable than £1. These days thanks to inflation, you’d be lucky to find anything in a shop at that price! The same rule of perception applies to business sales. Often, a business valued at £149k will be perceived as being more attractive than one priced at £150k.
A business priced at £150k may also tip into a higher pricing bracket in online searches, which can result in fewer clicks. Your pricing strategy should take into account your target audience as well as perceptions of price, so you don’t miss out on visibility.
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When our brokers support vendors to value and market their businesses, there are three common pricing strategies available:
Let’s look at the advantages and disadvantages of each.
Vendors that choose to be upfront about their asking price generally want to deter unrealistic buyers, and attract more genuine ones. In some circumstances, such as a quick or forced sale, being transparent about expectations of value can work in favour of the buyer. Selling due to retirement may also require you to be upfront in order to generate sufficient funds for the lifestyle you desire.
Most small business sales (sub £100k) tend to be listed with a clear asking price. Buyers at this level are likely to be working to a tight budget and prefer to filter online listings by price. In sectors in which value is based on common factors, such as IT services, asking price is almost always published.
A guide price will still attract genuine, interested buyers and may create healthy competition. Asking for offers around a specific figure could trigger offers over and above the guide price to secure the sale, however it may also lead to offers below the guide price.
Inviting buyers to make an offer demonstrates flexibility and a willingness to negotiate. It generates intrigue and interest, leading to competition and potentially increasing the value of bids. On the flip side, it could also deter serious buyers from making an enquiry. Some buyers will discount opportunities with no indicator of whether they can afford to buy.
Most businesses valued at over £500k tend to invite offers. These are more likely to be a B2B purchase and offers are based on perceived value, e.g. potential savings and profit. Equally, if your business does something remarkable, setting an asking price can make it appear expensive, so we would recommend inviting offers instead. Unique businesses shouldn’t have to justify an asking price in online listings. Those reasons should be discussed with genuine buyers during the negotiation process.
There are several factors that influence a vendor’s decision not to list a selling price:
Setting an asking price when selling your business may help avoid time-wasters and attract more realistic offers in line with expectations. Clear pricing could also make your business stand out and garner attention in online searches.
While some buyers are motivated by price and need to see this upfront, others are looking for different forms of value and are willing to make an offer. Profiling your ideal buyer can help you to decide whether to list an asking price. Going through this exercise with clients as we support their exit often enables us to target a shortlist of ideal buyers privately before moving to the open market.
Ultimately, it comes down to personal preference and gut feel. Is your ideal buyer’s decision to purchase driven by price, or are they willing to research and spend time exploring the opportunity?
Valuing a business is only straightforward in a handful of sectors, making it difficult for a business owner to determine a realistic sale price. Business valuations are based on several factors and methods, so it’s important to select the right approach. At Business Partnership, our brokers combine their individual knowledge with partner expertise to support vendors and buyers through the sale process. Obtaining a professional business valuation generates an achievable sale price, based on recent selling prices and an understanding of the current business sales market. We have brokers experienced in selling businesses in your sector and location. Find your local partner here and get in touch to find out how they can help
Whether you’re selling, buying, or planning for the future, Business Partnership is here to help. Contact us today to speak with your local Regional Partner and start your journey toward success.
Whether you’re selling, buying, or planning for the future, Business Partnership is here to help. Contact us today to speak with your local Regional Partner and start your journey toward success.