The "Perceived" Value of the Company

The buyer's perceived value will determine the price. If the buyer thinks the price is too high in relation to the value delivered, they won't buy.

That is your challenge when setting price for your business. The price you get for your business will depend on how you market the business and to whom you market.

It is critical that you follow these two rules when setting price:

1. First, substantiate the true market value for your business:
   Picking a number our of the air will be challenged. You can substantiate your price by establishing a true market value on your company assets, sales, cash position, and market.
2. Second, market your value to the right segment of buyers:
   A buyer who has a clearly defined strategy why they want your business may pay a premium over your set price. Another buyer who is only interested in your company assets may be less willing to pay anywhere near the asking price.

The Strength of Your Competition Can Impact Market Value

The buyer will analyze your competitive position. They may request your competitive defense strategy. Example:

• you need to define the barriers of entry into your market — how easy or how difficult is it from someone entering your market to compete?
• you need to define the barriers of exit — can a competitor exit the business fairly easy or are the barriers so high that an attack on a competitor may force price retaliation?
• what competitive threats do you find from players in the value chain — can your supplier or buyer move up or down the value chain to compete directly?
• what gives you an competitive advantage over the next player — is it your retail location, marketing segmentation, product offering, or what? Be prepared to demonstrate and explain.

View our business valuations services for more information