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How to price (place a value on) your company - view tip
The value of a company can be perceived differently depending on the type of buyer - view tip
Why should you do a business valuation even if you are not selling your business? - view tip
Calculate an estimated company valuation using two valuation parameters - view tip
#5 What does the business valuation look like? - view tip
#6 What buyers see when pricing a company - view tip
#7 How lenders value a company - view tip
#8 Why use a 3rd party valuation? - view tip

Valuation Tip #2

Values Perceived Differently Among Buyers

Buyers Looking for Assets or Equipment

These buyers are only interested in purchasing equipment or assets (intellectual property) that can compliment their current operations. They will be shopping equipment at bargain prices; they may have little or no interest in your markets or goodwill.

Pricing Formula:
the price they will pay is the market value of your equipment and assets - which is generally priced at its replacement value
use this pricing strategy when you want to exit the business
target the sale of your business to the competition or other-like businesses in your area
Buyers Looking to Buy Location

there are buyers who are interested in a particular location such as a retail intersection or logistical handling (i.e., next to the airport). They may or may not be interested in your assets, goodwill, or markets.

Sellers in this situation generally own the building and land. The buyers will either tear down or renovate your existing location.

Pricing Formula:
the perceived value is dependent on the macro-changes that are happening or expected to happen for that location
the price they will pay depends on retail price of similar property in the surrounding area
understand the potential use of your location. If your location is in a prime retail location for example, you may price your business and land at a premium
you should get an independent land appraisal to substantiate your price
Buyers Looking to Buy Your Established Market or Operation

The seller will have established contracts/sales in a geographic location or market to a demographic group where the sales barriers are high. The buyer will have interest to move into an established market and ramp up their business quickly.

Pricing Formula:
the buyer's perceived value is dependent on the cost and time to establish a similar market or operation
if the barriers of entry are high, meaning that the cost to setup and capture a similar market relationships are high, then your price could be somewhat high
if the cost to setup a similar market is not high, then your price will be dependent on the buyer's perceived value of timing - how quickly they want to be in the market.
understand the cost to setup a similar market. If that cost is high, then the perceived value may be high depending on your projected market position
if the cost to establish a similar market is not high, then the perceived value is the strength of your documented cash flow position
Buyers Looking to Buy Your Technology

The seller will have a specialized or patented technology that cannot be replicated within a reasonable time or cost. The buyer will be an established operation that can benefit from this technology.

Pricing Formula:
in most cases, the buyer would seek to license the technology and may not be interested in buying your operations
the buyer's perceived value is the opportunity cost of not having the technology
price the business and technology together with the technology piece the greater portion of the overall value
the buyer may perceive the value as a great buy where they can take ownership of the technology and discontinue you as a potential hostage holder or competitor
Buyers Looking to Buy Your Goodwill

The seller will have a strong brand name in a defined market. The buyer will want to capitalize on the brand name to expand their marketing operations.

Pricing Formula:
the perceived value is dependent on strength of the brand name and the current operations or product line
the value will depend on the brand - which can be subject to different opinions - and the value of your assets and earnings
If you are in a position of strength - meaning that your cash flow position and brand recognition are strong - you can bump the price up.
Buyers Looking to Own Their Business

The seller has a business that is performing well with potential growth opportunities. The buyer will be an individual who left the corporate ranks to look for an independent business opportunity

Pricing Formula:
the buyer's perceived value is the cost to finance the business, set an annual salary for the themselves or another business manager, and maintain required capital expenditures
the higher your cash flow position, the greater your market value
price will be based on your cash flow position which can be 2-3 times over cash flow

How much is your business worth? Contact us

Contact us

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Krayton M Davis
Executive Director, Novars Group, Inc

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