Buying an already established business is an excellent idea for an individual who wants to do away with the challenges of building one up from the ground. Just because a business is already established, though, does not mean that you could afford to not have to deal with market details like pricing.
There is a slight distinction between valuing a business and pricing it. Of course, there will be a difference between how a buyer and a seller sets a price. Arming yourself with the right information will give you an upper hand when negotiating the price of a Vancouver business for sale. Keep the following factors in mind during that process.
1. Calculation Method
First, you have to consider the techniques used for pricing. The multiplier formula is a common one that sellers use, but you should understand what it entails and if it offers an accurate assessment of a fair pricing.
One example of the formula is a particular industry deciding that a company for sale should be priced at three times its annual gross sales. In such an instance, the multiplier has been arrived at arbitrarily, so it may only serve as an estimate rather than an accurate representation. Another method that buyers and sellers can use to set the price for a business up for sale is the book value. This technique is usually very accurate because it takes the difference between a company’s assets and liabilities to get its net worth. Consult your business broker to find the most suitable method of calculating a fair price.
2. Economic Climate
Another consideration when determining the price is the economic environment. In a favourable economy, the asking price of a business for sale will be higher than when there is a recession. A seller may want to get rid of a company faster to avoid losses, especially if the market situation is not looking very favorable. Most buyers use this factor when timing their purchase.
3. Business Size
The size of the business for sale in Vancouver is another point of deliberation when setting an appropriate price. A larger company will come with a heavier price tag than an SME. Know the characteristics that classify the size of a business. The size of a company will also dictate the costs of financing and running it, plus any hidden expenses that you may encounter after purchase, and all these should be factored in as well.
5 Considerations When Valuing a Business. Entrepreneur Handbook.
Ready to Launch: How to Buy a Business. Entrepreneur.