When selling a small to medium-sized business, perception of value is a crucial factor that determines what price buyers are willing to pay. Contrary to popular belief, such businesses rarely have a predetermined asking price. In fact, the value of a business is not static and can vary greatly depending on the buyer and their specific situation. Let's delve deeper into how this perception of value works and why a structured sales process is essential.
Different buyers, different values
When a business is offered for sale, it may elicit different reactions from potential buyers. The value a buyer assigns to a business depends on several factors such as their motivation, the potential benefits and their growth strategy. For example, a buyer who sees strong advantages with their existing business may place a higher value on the company than a buyer who sees no such advantages.
A practical example can clarify this: There are 4 interested buyers for a company. One of the companies decides to pull out because of possible cultural problems with an integration. The three remaining buyers submit letters of intent. Two of them make an offer in the neighborhood of €10 million, while the third makes an offer of €15 million.
What explains this significant difference?
Motivation and benefits of value perception
The buyer offering €15 million is likely to see significant benefits and/or growth opportunities in acquiring the business. This may mean that they expect cost savings or revenue growth by integrating the business into their existing operations.
The importance of a structured sales process
To get the best possible price for a business, it is essential to follow a structured sales process. This process should focus on engaging all qualified buyers simultaneously. This creates a competitive dynamic that can lead to higher bids. A structured process ensures that all potential buyers have the opportunity to express their interest and appreciation for the business.
A well-organized sales process includes:
- Preparation: Ensure thorough preparation and present the company in the best possible way.
- Selection of buyers: Identify and engage all qualified buyers who may be interested.
- Create competition: Make sure buyers know there is competition, this often leads to higher bids.
- Transparency: Be transparent about company information and expectations to build trust with buyers.
Conclusion of value perception
The value of a business is determined by what buyers are willing to pay, and this can vary greatly depending on their specific situation and plans. A structured sales process is therefore crucial to maximizing value. By engaging all qualified buyers simultaneously and creating a competitive environment, the seller can realize the best price for his or her business.
Understanding the dynamics of value perception and carefully planning the sales process can make the difference between an average sales price and an exceptional sales price!
