15 Mar Sale Price vs. Asking Price
A recent survey by BizBuySell, using their data, makes for not only interesting reading, but is very informative. BizBuySell is providing a valuable service to the business brokerage industry by promulgating this data.
For example, one interesting figure is significant because it bears out a figure from other sources. The chart in the BizBuySell report on small business sales price versus asking price came out at approximately 84 percent for 2011, just about the same as many other indexes. Interestingly, in searching my archives, I found a 1992 study done by the Entrepreneurial Studies Department at Babson College when I was the Executive Director of the International Business Brokers Association. Guess what they found was the sales price versus the asking price – you got it – it was 84 percent. This is a very valuable statistic. The BizBuySell report represents thousands of sales and therefore the percentage of asking price versus selling price is very meaningful.
When an offer is presented to a seller and is only 20 percent less than the asking price, the information in this report can make a deal. And, certainly if the offer is only 10 or 15 percent less than the asking price, the results of thousands of closed deal should make a seller grab the deal. It’s pretty hard for a seller to argue with thousands of sales. What this figure strongly suggests is that businesses are listed for about 15% more than what they are really worth in the market place.
I could also make a case regarding all of this valuation work, and business brokers trying to list businesses at just the right value (I would prefer to use the term price, but it is now the value). So if the sales price versus the selling price was 84 percent in 1992; and if the percentage in 2011 was 84 percent, could we assume that all of this valuation stuff is really a waste of time? Keep in mind that in 1992, most business brokers couldn’t spell valuetion.
In 1992, brokers usually just accepted the seller’s asking price. The time spent trying to calculate the value of a business should be spent on trying to figure out how to sell the darn thing. The price usually takes care of itself.