Are You Asking a Reasonable Price for Your Privately Held Company?

Placing a price on a privately-held company is usually more complex than placing a value, or a price, on a publicly-held company.  There are many reasons for this fact, but one of the top reasons is that privately-held companies don’t have audited financial statements.

Why are Audited Financial Statements Lacking in Privately-Held Companies?

Preparing an audited financial statement is expensive and, as a result, many privately-held companies that have not gone public simply forego the expense. Most privately-held companies are also not accountable to bankers, investors or partners so there is no need to incur this cost.

Compared to a privately-held company, a publicly held company can often seem like an “open book.”  Buyers are left with the proposition of having to dig out a lot more information from a privately-held company in order to assess whether or not a valuation or price is accurate.

What Can You Do to Overcome this Factor?

You, as the seller, can help streamline this process.  By having as much information available as possible and having your accountant make sure that your numbers are presented in a manner that is easy to understand and follow, you will increase your chances of selling your business for the highest value.

Experts agree that there are several steps a seller of a privately-held company can take when he or she is establishing a price or a value.  First, use an outside appraiser or a Business Broker/Advisor to determine a value.  Next, establish what your “go-to-market” price is.  Third, know your “wish price.”  A seller’s “wish price” is the price that he or she would ideally like to see.  Finally, it is critical that sellers establish the lowest price that they are willing to take.  You should know in advance how much you are willing to sell for as this can help a negotiation move along.

The Marketplace Will Ultimately Decide

It is common that the final sale price for the company be somewhere between the asking price and the bottom-dollar price established in advance by the seller.  Yet, it is important to note, that on occasion a selling price may, in fact, be lower than any of the four we’ve outlined above.  At the end of the day, the undeniable fact, is that the marketplace will establish or determine the final selling price.

Here are a few of the areas that you can expect a buyer to review when establishing the price that he or she is willing to pay: stability of the market and stability of earnings, the potential of the market, product diversity, the size of the customer base, the number and seriousness of competitive threats, how broad the customer base is, the relationship with suppliers, the distribution network in place, needs for capital expenditures, terms of the sale and other factors.  The more favorable each of these points are, the more likely it is you’ll receive a higher value. Contact one of our M&A Advisors to discuss this further and how we may assist you in the sale of your business.

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Matt Coletta, CBB, CBI, is a Certified Business Broker and a Certified Business Intermediary with over 25 years of experience in successfully representing Business Sellers and Buyers in various industries. Matt is a Los Angeles Business Broker and represents Business Owners and Businesses for Sale throughout Southern California including: Los Angeles County, Orange County, Ventura County, West Los Angeles, City of Industry, Downtown Los Angele, Gardena, Whittier, San Gabriel, Upland, South Bay, Torrance, Newport Beach, Irvine, Brea, Anaheim, Long Beach, San Fernando Valley, Woodland Hills, Chatsworth, Sherman Oaks, North Hollywood, Northridge, Van Nuys, Burbank, Glendale, Pasadena, Sun Valley, Valencia, Santa Clarita, Palmdale, Ventura, Camarillo, Oxnard, Thousand Oaks, Simi Valley and other cities in the greater Southern California area.