Some Key Factors in Pricing a Business

The following questions are useful to understand a business and thereby price that business more prudently:

• What's for sale? What's not for sale? Does it include real estate? Are some of the machines leased instead of owned?
• What assets are not earning money? Perhaps these assets should be sold off.
• What is proprietary? Consider trademarks, copyrights, patents, software, etc?
• What is the competitive advantage? Does the business have a certain niche, superior marketing, desirable location?
• What is the barrier of entry? Is it capital, low labor, tight relationships?
• What about employment agreements/non-competes? Has the seller failed to secure these agreements from key employees?
• How does one grow the business? Maybe it can't be grown.
• How much working capital does one need to run the business?
• What is the depth of management and how dependent is the business on the owner/manager?
• How is the financial reporting undertaken and recorded, and how does management adjust the business accordingly?

These are important questions for sellers and their advisors to consider when setting the price of a business for sale. A qualified business broker is an indispensable took to help answer these questions and determine a most probable selling price for the business in its marketplace.