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One of the first issues any business person runs when selling or buying a company is the question of valuation. It’s not always immediately apparent what a company is worth. It’s also not straightforward to value all companies in a precise way. Instead, most parties end up agreeing on a formula based on the “Standard of Value.”

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Determine A Valuation Before You Sell Your Business

The concept behind this value is that determining the worth of something is not a uniform process. For example, people pay much more for items with historical value when buying antiques. That same “old junk” doesn’t offer value from tons of others who pass by the deal. With a business, there may be intangible items that cause similar distortions in valuation.

Fair Market Value Makes for Straightforward Sales

One of the most obvious examples of a Standard of Value is Fair Market Value. This formula starts with the assumption that both parties have all the information and knowledge they need about an asset before they agree on a price. They aren’t expecting any surprises, and they agree on the intrinsic value and calculations.

If a Fair Market Value is easy to establish, both parties should be able to reach a deal rapidly. If there are certain areas of disagreement, it will add time.

If you want to sell a business that a more significant competitor offers, it’s worth understanding the “synergistic value” of a deal between two entities. When a considerable enterprise acquires a smaller competitor, they unlock synergy. For example, the giant corporation has better lending terms and more capacity. That means they can drive down costs and improve margins after they take over.

Hold out for a Premium Offer

In cases like this, the buyer will be willing to pay a premium. If a company doesn’t offer a ton of these advantages, the price they want to spend will be much lower. It makes sense. To return an adequate profit after the purchase price means they need to either improve margins or pay a very reasonable amount for the acquisition.

Consider an ideal case of two companies that compete for the same customers in close geographical proximity. One will purchase the other and will immediately see increased sales because their number one competition is closing. Not only that, they’ll alert the customers to shop at the new store while also cutting all unnecessary expenses.

As you can imagine, if you want to sell a business it’s worth exploring a synergistic deal. Otherwise, you’ll negotiate based on Fair Market Value which will be a straightforward accounting of inventory, sales, and physical equipment.

Remember that any investor who will instantly profit from acquiring your assets will pay more than a lukewarm prospect that is looking to save money. The only time to accept a low offer would be due to personal emergencies or business catastrophes. Our business brokers can help you unlock the synergy by targeting ideal candidates so you get the best deal possible for your business.