Q: How do I work out the price of my business?
Oct 20 2009
Answered by: Marc Barber Ask a question
The price for any business does not exist as a theoretical calculation. The only price that is ‘right’ is the price that both the buyer will pay and the seller will accept. It is all down to negotiation. This may bear no relation to the prices calculated as a result of the value of the assets or the earnings potential that the business gives you. The first step is to jettison all notions about real value. The second step is to throw out the window all notions that the price given in the agent’s details, for example, is the price you will have to pay. Negotiation is everything.
However, you should enter any negotiation with two prices in mind. If you are the buyer, the lower price will be the price you use to open the negotiation; the higher price is the maximum you will be willing to pay. You should not start negotiating unless you have a clear idea of this maximum price. If you are a seller, the lower price is the minimum you will accept and the higher price the one you adopt initially.
Nevertheless, it is vital to have used a number of methods of arriving at a price. These can give you a benchmark for establishing lower and upper prices. You must have a base point to work from. The accountant who is advising you should carry out these calculations for you, but you should know the basis for the figures. You can set a value by asset value, earnings multiple, or return on capital employed.
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