Q. We’re planning to sell our business. Should we have a valuation completed in advance of the sale to support our asking price? Will this give our sale price greater credibility in the market, if it is supported by an independent valuation?

A. An independent valuation opinion is a valuable piece of information if you are looking to establish your sale price and you are unsure of what a fair market price is for your business. However if you are clear on the price for your business, it is less valuable as a support tool to convince a prospective purchaser. In most cases a purchaser will want to obtain their own independent valuation. Their reluctance to accept a valuation commissioned by the vendor will be a concern that you may have influenced the valuation in some way or that it is a valuation opinion, ‘friendly’ to the vendor.

Where you are unsure about your sale price or where you have determined a price but don’t have market information to support that price then a valuation opinion will tell what a purchaser is likely to be told when they make enquiries about your asking price. It will also assist you in comparing your asking price to the assessed value. This is an important piece of information to have.

It is important to understand that price and value are not the same thing. In a perfect market they would be but typically we don’t operate in a perfect market. Supply and demand will cause price to trade at either a premium or discount to value. For SMEs, historically, price has traded at a premium to value. This will vary across industry sectors and depend on the quality of the business. For good quality businesses price should trade at a premium to value. These businesses should command a price in excess of value. A premium of 30% would not be uncommon.

Where your sale price is a material amount, then most purchasers will seek either a valuation or appraisal of the business. By understanding the value of your business it allows you to position your price and explain to a purchaser why your asking price is warranted. Much of this is a marketing exercise. Purchasers have choices. It is not a problem to be asking a sale price greater than assessed value, the problem come when you cannot explain why your business commands a premium.

In setting a price for your business you should know what it is worth and be able to explain any differences between price and value. A purchaser may not mind paying a premium providing that the premium represents real value. If you are obtaining a valuation make sure the person completing the opinion for you is experienced in valuation work and understands your business. It is more than just the numbers.

To find out more about how Hayes Knight’s professional team of business valuation experts can assist you with this process, click here.