Three tips to set an asking price for your small company

One of the most important and difficult decision to make once you’ve decided to sell your business is how to set an asking price. You’ve worked hard to build your business and offsetting it won’t be easy. What’s more, putting a price on it might not be something you've considered in the past.

Don’t worry, many business owners experience this exact issue – all documents, finances, staff are all set and ready to go but they’re stumped when it comes to an asking price.

The price you ultimately settle on is entirely up to you, but a bit of guidance will be a great help in setting a price that really reflects the value of your business. Here are three things to consider when setting your asking price.

Put emotions to one side

As a small business owner, you have no doubt worked very hard to get your company to where it is. Forming an attachment to a business, especially if it’s your brainchild, is completely normal. However, in order to be able to participate in a worthwhile negotiation, you’ll have to leave emotions to one side.

The business may be priceless to you, but this can lead to you setting an unrealistic asking price and putting off potential bidders. One solution in this regard is to speak to someone you trust, but who can provide an objective input. Ask for an objective and honest assessment and use that as a starting point.

Make a valuation of your assets

Once you’ve completed this step, it’s time to talk figures. You should start by valuing your assets and aim to arrive at a estimate of their total worth.

The simplest way to accomplish this is to list all of your company’s physical assets. An especially useful tip for established small businesses is to look at the net realisable value of all the company’s assets, factoring in the age and depreciation of each asset.

Producing an accurate valuation of your business’ assets can provide you with a realistic appreciation of the value of the resources your business owns and give you the information necessary to produce a valuation.

Your earnings multiples

Earnings multiples may appear to be complex, but it’s definitely one you should familiarise yourself with when selling your business. It is a common and widely used method of business valuation which involves the use of a formula to value a company based on a multiple of its net profits.

More widely known as the Price/Earnings ratio, it will give you a representation of the value of your company divided by its post-tax profits. An accountant can provide you with the multiple for your sector, which can then be used to calculate your business’ earnings. By multiplying your profits with the ‘multiple’, you can will be able to reach a more informed and accurate asking price.

Selling your own business is always going to be hard and putting a price on something you consider priceless might seem close to impossible. However, if you approach the process professionally and always with a sale as the ultimate goal then you will be able to come up with an asking price that reflects the value of your company and won’t leave you either unable to sell due to too high a price, or ruing selling your pride and joy on the cheap.