William Scarlett • Anna Davison
AWARD WINNING BUSINESS BROKERS
Sharp Strategy. Trusted Advice. Seamless Execution
William Scarlett
Anna Davison
AWARD WINNING
NZ BUSINESS BROKERS
Sharp Strategy. Trusted Advice. Seamless Execution
We often get asked: Why is price positioning so important when selling my business? The importance of getting the asking price right is seldom fully understood, and a common reason why good businesses don’t sell.
In this four-minute blog we discuss why it’s crucial that the business broker you engage gets the appraisal and listing price right.
Appraising the market price of your business is a complex process as there are a lot of variables that can impact on price.
Our objective as your broker is to assess all these factors and work out what a willing buyer would pay if they bought your business today.
It’s not like selling your house where you can easily see what other houses have sold for in the neighbourhood. There is quite a lot more to it than that as each business is a unique proposition
For a broker to do an appraisal well requires experience, time spent on research and data analysis, and importantly some good old-fashioned integrity.
Why integrity, well because a business appraisal can be quite subjective and should not be an opportunity for a broker to inflate the market price to entice and encourage the business owner into selling.
The market is what it is, and it’s important to face the facts, however encouraging or brutal those facts might be. Honesty is key.
Anna and I have seen two prime examples of over-pricing over the last year. Most recently we were approached by the owner of a mid-sized company who failed to sell her business because she was led to believe that it was worth a lot more than it was.
The broker had set the asking price unrealistically high, and while the vendor was very happy with this high price she thought she would obtain, the reality was quite different. The business sat on the market, got little interest for a long period, required successive price drops, and then suffered low ball offers. It’s a common pattern that we see; asking price too high = little interest = slippery slope of price drops and lowball offers. All of which takes it toll on you. It can be soul-destroying.
In NZ many Kiwi buyers don’t see the asking price as the starting point for negotiation but are more inclined to see it as “the price”. It’s not like in Australia and other countries where the asking price is seen as an invitation to negotiate and negotiating or ‘haggling’ are commonplace and even expected. Kiwi’s can be a bit more reserved in their approach, hence the importance of broker integrity and getting the price right.
Anna and my approach is to carry out a thorough and well considered appraisal, price it well, research the potential buyer pool deeply, and then market it thoroughly and widely. This aligns the buyer interest and means we are far more likely to achieve some competitive tension where we can play buyers off against each other and achieve close to asking or better. That’s what we are all about, nothing less.
One recent example here is where Anna and I had a Wellington childcare centre listed for $950k which we marketed extensively over a four-week short period. Within six weeks we had four offers on the table and managed to exceed asking and we achieved $990k. The Vendor was happy!
Sometimes, as we are finding now in a slowly improving market, our appraised prices can be higher than vendor expectations, equally sometimes they can be less.
If our appraised price is less than expectations and the client need to achieve a higher price, then we work with them, providing guidance on the steps required to achieve that price sometime in the future.
Sometimes the facts can be brutal and hard to swallow, but at least our clients know their position and can make informed decisions going forward. Of all the business appraisals we did over the past 12 months, around 60% were hold-and-improve recommendations.
So, my closing point is that you need to closely scrutinise the market appraisal report you get from your broker. It should be a thorough and intelligent report on your business with at least five comparable sales and should embrace two or three appraisal methods to triangulate appraisal value as objectively as possible.
To find out more about the appraisal process view my next blog on that very subject. Thanks for joining me.