Is starting with a higher selling price a good strategy when selling a small business? or even showing an asking price? I have some definite ideas about this concept and would like to share along with other Advisors, Brokers, Agents contributors on BizBen. What are your thoughts on asking prices?
I (Rob Hartman is a professional business broker I work with) recently had a client who engaged my services to help them sell their business. I performed a Market Value Analysis and came up with a listing price that I felt would serve them best in the efforts to sell their business. They were excited to move forward and sell their business with one small change. They wanted to increase the listing price of the business substantially, and advertise the business for sale at a much higher price than I had recommended. The owner's reasoning was that we could always lower the price later if it didn't sell, and if there was someone out there willing to pay extra for the business, they didn't want to leave any money on the table.
I informed the business owner that I didn't agree with this strategy for a few reasons. First of all, there will be several similar businesses for sale at the same time and if a potential buyer needs to narrow his decision down to 2 or 3 choices, the business that is priced too high will not get the consideration because they didn't make the first cut. Second, in the eyes of a savvy business buyer, if a seller is unrealistic with his selling price, he will probably be difficult to deal with in other aspects of the business buying process and that alone will keep people from inquiring for more info. Third, a business buyer worked very hard for the money to buy a business and they aren't going to be frivolous with that decision. They have several options of what to do with their money including doing nothing at all.
However, they decided not to heed my advice and do it their way first. The owner said, "Let's try it my way first, then we can try it your way." I advised him that starting high and lowering later may have adverse effects that could hurt his chances of selling his business at all, but nevertheless we went with the price high strategy and well here we are 6 months later at the lower price for 3 months and the business still isn't sold. Even though, several other similar businesses have sold at similar pricing, this owners business remains unsold.
I am curious to know, how the business buying and selling community regards the "price high, lower later" strategy regarding pricing businesses for sale. Has it ever worked for you in the past? All other things being equal, does a business that starts with a high price and lowers later, hurt its chances of selling.