Pricing Business

                                                Pricing the Business

There are different types of buyers, each with certain advantages and disadvantages. You can actually set different selling prices depending on the type of buyer. However, in all cases, the selling price needs to be justifiable and realistic. Too often, business owners waste their time and resources by placing an unrealistic price on the business. It’s worth having a discussion with someone to bounce off your ideas about why your business is worth X (generally, an accountant or real estate agent is not the best choice for this conversation).

Here are the six main types of buyers:

Regular Buyer: This person is generally looking for a business to earn a living. The price a regular buyer will pay is usually a reflection of the premium the earnings would return on the investment versus a regular job. Example: Why would someone pay you $100,000 to earn a profit of $40,000 a year if he or she could get a job earning $40,000 a year without risking any capital? 

Foreign Buyer: A foreign-born person may have much more difficulty obtaining U.S. employment. However, owning a qualifying business makes it easier to get an E-2 visa. Buying a U.S. business allows these buyers to enter the USA and potentially earn a living at something they have experience with in their own country.

Competitor:  This type of buyer is familiar with your business and industry and wants to save by eliminating synergistic costs. (Of course, these buyers represent a real threat if they decide to use the information to compete with you and not purchase your business.)

Working Investor:  This buyer puts money into the business and becomes your working partner, sharing the workload and the problems. (You tend not to get much money out of the business in this type of transaction, since the investor will most likely want all the money going into the business.)

Angel Investor: This is a single investor who buys you out. It’s a very tough deal to close if you don’t have a management team to replace the owner’s involvement in operating the business.
 

Regulation D Funding (Reg. D Offering): This involves selling shares in your business to outside investors. You still own a controlling interest, so you remain the boss. You can put some of the money you receive toward company expansion and cash out the rest of the money. It’s easier to raise $1,000,000 from 50 people at $20,000 each than to find one investor with $1,000,000. That’s where Reg. D comes in: federal securities law governs all shares sold, and Reg. D is a short, cost-effective way to raise money with multiple investors. Generally, the necessary documents and federal filings can be completed for around $5,000.  Note: If you fail to follow the law when selling your business, the buyer may have a “right of rescission.” This means that he or she can force you to return all the money, hold you personally liable, and give back your business wrecked. I’m sure you would be very unhappy in that case.

CONSULT: When you are at the critical point of establishing a price, it may be wise to consider discussing your pricing matrix with us. A bad price can undermine all your efforts to sell the business. With two hours of work and conversation, we can usually guide you to a selling price that you can justify to any buyer.

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