The first rule of selling your business is simple: Don’t set a price. But like many rules, this one can be broken – under the right circumstances.
At O’Keeffe & O’Malley, we usually recommend our clients go to market without an asking price. It might sound crazy, but it’s actually a smart decision for businesses that fall into certain categories. Here’s what we consider when we recommend selling without an asking price.
Market trends. Is the business in a hot industry with favorable demographics? Does the business have a history of growth? The combination of these two factors can make a business incredibly attractive to a lot potential buyers. In a strong market like the one we’re in right now, going without an asking price will be a good call.
Complexity. Every business has its intricacies, but some have more than others. Smaller businesses that are less complex usually do best in the market if they have an asking price. This is especially true if the business has relatively consistent earnings. Different buyers will look at that business in similar ways and come up with similar values. You might as well provide an asking price on businesses under $1 million in value. But on the other hand, larger, more complex businesses could attract buyers from many different arenas. These potential buyers might see different values in the business and come up with varied sales prices. In this situation, going to market without an asking price could pay off big.
Potential buyers. Who is the target buyer for this business? What level of comfort do they have with both the industry the business is in and the mergers and acquisitions process? If the potential buyer is fairly new to either the industry or the process, the lack of an asking price may mean you’ll need to guide them a little bit or they won’t move forward. But if the target buyer is an industry insider or a private equity group, starting without a price is the only way to go. Experienced buyers are comfortable without an initial asking price and could assign a value to your company that exceeds your expectations. There are factors other than price that will come into play, like what assets are included and the terms of the sale.
Timeline. If you’re a motivated seller, have a smaller business, or want to sell in a shorter period of time, having an asking price may be the way to go. Going to market without a price means that selling your business may take longer. If you’ve got the time and flexibility, it can pay off.
There’s no single right answer here. If you’re thinking about going to market without an asking price, you’ve got to take an honest look at your business, the market, and your potential buyer. Getting outside advice is a good idea, too.
O’Keeffe & O’Malley can help. Give us a call at 913-648-1085 for a confidential meeting. We can guide you through the process and help you make the right decisions.