Getting the asking price right on your business listing is one of the most critical factors in getting it sold. When it comes to the valuation of a business, we have to listen to the marketplace data on sold listings. We know what buyers are willing to pay for a business of your size in the same industry, so finding the market value of a business isn’t rocket science once we’ve determined the true owner benefit and the industry multiple. So, why do so many businesses just sit on the market for months and years and never sell? Some of them aren’t salable, but most of those businesses are massively overpriced.
As humans, it’s our natural inclination to want to list our business at a higher price and “see what happens.” In rare cases, we get lucky if the stars align and it’s a perfect storm. However, most of the time in those “see what happens” cases, we end up needing to do one or more price reductions to get the price down to market value and make the business listing more attractive to buyers. So, when is the right time to do a price reduction on a business listing? In business, we love to do things in quarters, and our price reduction philosophy tends to follow suit. Let us explain…
If your business has been listed for 3 months and you have seen little-to-no buyer activity whatsoever, then the market has spoken loud and clear. Your price is probably too high. This is the perfect opportunity to inject some life back into your listing with a price reduction. This will hopefully bring in fresh buyers in a different price band. Remember that buyers are scrolling through hundreds and thousands of businesses online, and they have to be able to see the value in your listing price in one single glance. Hopefully a price reduction at this early stage will do the trick, so you don’t have to wait another 6 to 9 months for a buyer to come along.
When you’ve finished out the second quarter of your 12-month listing agreement, that is the perfect opportunity to discuss the level of buyer interest your listing has seen. If after 6 months of advertising and marketing the buyer interest isn’t there or even worse, the buyer feedback on your listing is that it’s overpriced, then another price reduction at this point would be the right choice to get your listing moving. At this point, you would also want to ask your business broker if there is anything else that can be changed or improved, based on the buyer feedback. This is the prime time to make sure you’ve got it right.
According to the statistics for sold businesses, the average business stays on the market for 9-10 months before it is sold. So, if at the 9-month mark you still haven’t identified a viable buyer for your business, all hope is not lost. However, you will be going into the last quarter of your listing agreement, and this is the last big push to find a buyer. Statistically speaking, this is the magic time for most businesses on the market, so making another price reduction here isn’t a bad idea. This is kind of the last big effort to attract a buyer and to be able to close within the same year.
Relisting After 12 Months
If your business has been listed for a year and hasn’t sold, you’re not alone. This happens much more than not. In fact, it’s estimated that only 25% of businesses listed will ever sell. So, we are commonly relisting businesses that are 'expired' listings. Many of these expired listings are coming to Green & Co. from being listed with another brokerage. Sellers are looking for a fresh start with a new broker, and with that fresh start needs to come a new asking price, based on the most current owner benefit and market data. Sellers who are relisting after being on the market for a year need to be realistic about why their business didn’t sell previously, and admittedly, it’s not always down to price 100% of the time. However, relisting is a great time to put forward a brand-new price, hoping to capture buyers who haven’t yet seen your listing.
Seller Motivation or Circumstances Change
Of course, if the seller’s motivation to sell or circumstances surrounding the owner’s life changes (health, relocation, divorce, etc) then the price of a business listing can be reduced at any time the seller and their business broker see fit to do so. There is no magic time for a price reduction, but the above quarterly scenario makes sense from a statistical and strategic standpoint. At the end of the day, your business broker will suggest to you their opinion of where they think your asking price should be, based on market data, buyer feedback, or length of time on the market, but ultimately the asking price needs to be whatever the seller is comfortable and happy with. So, hopefully you are able to communicate openly and honestly with your business broker about any concerns you have about your listing. At the end of the day, we all have the same goal: to get your business sold.