The Problem With An Over-Priced Practice

How Should You Price It

So you’re thinking about selling your practice. How should you price it? The higher the better, right? Well, not so fast. According to business broker Jim Stauder the value of most small businesses can usually be established in a pretty tight range (within about 10%). Setting a price too high is one of the most common reasons that 75% of small businesses never sell. Here are five reasons why you should not set your price too high.

1. You won’t find the greater fool. Most buyers are first-time buyers. While there may be uninformed buyers who will make an offer, most will ultimately use a professional advisor in the due diligence stage who can easily spot an over-priced business. There are too many checks and balances, and somebody will spot the over-valued practice.
2. Denied financing. The bank is one of those checks and balances. When it comes time to get a loan, banks can easily spot a price that is out of line, and deny financing.
3. Serious buyers don’t want the hassle . Pricing the business above the top end of the range for negotiating purposes is counter-productive. Many qualified and serious buyers, those who have been looking for a while and have previously been through the trials and tribulations of dealing with unrealistic seller expectations (only to be disappointed), take a pass on pursuit of businesses they know are overpriced. They don’t want the headaches.
4. Unscrupulous brokers. Some business brokers will do anything to get a listing. Unscrupulous and/or inexperienced brokers will accept overpriced listings knowing that ultimately the market will adjust the seller’s expectations. They pray that once the owners realize the true value of the business, will accept offers far below their (unrealistic) asking price.
5. Time kills all deals. While acting too quickly can occasionally be a problem, the far more common occurrence is a deal that takes too long. Starting with a price that is unrealistically high will increase the amount of time it takes to sell your business, and greatly increase the risk that the deal won’t happen at all.

Save Yourself The Stress

Save yourself the stress and misery. Working with honest business professionals can help you set a fair price for your practice right from the start, and make the transition happen more quickly and pleasantly.

 

John Scibal
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