| In order to realistically bridge the gap between | | | | The first year in the business may not be as |
| the expectation that a business owner has with | | | | successful as that of the current owner. Because |
| respect to the selling price of their business to the | | | | of this, a buyer may adjust their purchase price |
| expectation that a buyer has, a business owner | | | | downward to reflect a softer first year in |
| should see a deal through the eyes of the | | | | operation. |
| purchaser. A business sale is essentially an | | | | Perception is everything |
| exercise of competing perceptions. The | | | | A seller of a business may over-inflate the value |
| perceptions arise when the opposing parties have | | | | of their business, especially if they have owned it |
| differing views on how exactly value is defined. | | | | for a long time or if they are the founders. A |
| This article will explore some drivers that affect | | | | seller will often see a low selling price as a |
| the pricing decisions of a business buyer. | | | | reflection of their worth, not necessarily that that |
| Buyers calculate payback | | | | is where the market is. A buyer will see a |
| The buyer of a small business will look at the | | | | company through a more sober lense so a |
| purchase price and then do a calculation based on | | | | difference in value may arise. |
| their compensation, debt servicing and overall | | | | Reliability of financial information |
| return on investment. Often this is the key driver | | | | If there are many adjustments to a financial |
| for a pricing decision and less effort is spent on | | | | statements, such as add-backs for non-business, |
| irrational motivations such as emotions. | | | | discretionary expenses, then a buyer may have |
| Purchasers have a fear sentiment to deal with | | | | less faith in the numbers. A general rule of thumb |
| Buyers of small businesses do content with their | | | | is that the more adjustments needed to the |
| fear of entering into a business and assuming | | | | accountant prepared figures means less overall |
| debt and risk. This overall sense of fear is a keen | | | | confidence in their credibility. If you own a |
| motivator (or de-motivator) for many | | | | business try to run your business so that the |
| prospective buyers. It may be easy for a seller | | | | accountant-prepared books are a true |
| to say "don't worry" but for a buyer being asked | | | | representation of the economic reality. |
| to put their nest egg on the line, it is not so easy. | | | | Whether you are a buyer or a seller, the key is |
| Hence, buyers are constantly motivated to push a | | | | to understand that buying a business, unlike most |
| purchase price down to account for the fear | | | | other transactions, can be a process full of |
| factor. | | | | emotions and misunderstood perceptions. Try to |
| Steep learning-curve for new business owners | | | | understand where the other party is coming from |
| A business buyer will have more of a | | | | in order to come to a mutually agreeable position. |
| learning-curve than an established owner, | | | | Work with a local business broker and |
| obviously. They will need to get to know the | | | | experienced deal attorney and accountant to |
| customers, systems, staff quirks and may lose | | | | guide you through the process. |
| some business due to this or unfaithful customers. | | | | |