Pricing a Business: Market Value vs Seller “Need”
25 August 2025: Pricing a Business: Market Value vs Seller “Need”
Selling a business is the ultimate pay off for years of hard work. But in too many cases the sale is sabotaged by the business owners themselves.
In our nearly 25 years experience advising business owners on valuing and selling their business, one of the most common ways owners torpedo their chances of a successful sale is by looking at what they “need” from the sale rather than what the sale is likely to provide them.
What I mean by this is that owners have a tendency to determine what they want to do next – start a new business, sail around the world, move to Macau for the nightlife, start a mushroom farm – rather than determine what they’ll be able to do next.
They then establish a price that they want for their business without giving the slightest thought to their business’ actual value.
The Failure Rate
Pricing a business for its sale is the second most important component of the process that will determine the success of your efforts. (The MOST important component is, not surprisingly, knowing its value.)
Anyone who has been following this blog for even a short period, knows that pricing a business for sale without knowing – or ignoring – its market value is the main reason that more than 80% of businesses that come to market don’t sell.
That statement would seem to be at odds with our long-standing tagline that “Every Business That Doesn’t Fail Will Be Sold… Every One!” But it’s not a contradiction because the businesses that don’t sell when they initially come to market eventually will – but not until the reason they don’t sell has been corrected.
In cases where the business is overpriced, that means that the owners eventually – and in most cases, reluctantly – begin reducing the price they expect or want. This is often done gradually until the market begins to respond.
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But by the time the market “begins to respond”, untold numbers of potential buyers have looked at the business and, realizing it’s overpriced, have moved on.
The Irrelevance of “Need”
When we point out to a business owner that the price they want for their business is significantly higher than how the market appears to value it, we often hear, ‘that’s what I need.”
But we have to point out that a buyer – the market – doesn’t care what the owner needs. The buyer cares about a reasonable return on their investment; a return that reflects the risks inherent in small business ownership, the demands on the owner’s time and the competition for the owner’s investment capital. When pricing a business, the buyer’s needs, viewpoint and options must be considered.
Risk
Business ownership is risky – which is why the vast majority of people are employees.
Two of the most serious and currently high-profile risks are financial and economic – interest rates and inflation, respectively. Other risks include strategic, liability, business interruption and reputational.
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Potential business buyers – even those with only a modest level of business sophistication – are still investors. When they invest, they want a return on their investment commensurate with the risk that the investment entails. Small business ownership is often considered a pretty risky investment, notwithstanding the business’ history. The buyer’s rate of return must reflect risk.
(One of the first videos on our new YouTube channel discusses a buyer’s realistic demand for a return on his/her investment.)
Time
Business ownership – at least until the business has grown to the point of having a management team in place that will allow the business to thrive even if the owner decamps to Katmandu to spend a couple of months sampling a wide variety of some of the regional agricultural products – takes an enormous amount of the owner’s time. It’s not a 9 to 5 job.
I’ve owned and actively managed several businesses in my career. The smallest was a small sole proprietorship with only a handful of employees. The largest (though still small) was one with over $1 million in revenue and 25 employees. Each of these businesses monopolized my time.
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REALTORS! Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to accurately value and successfully sell businesses.
Don’t Miss Out on the “Silver Tsunami”!
A business buyer/investor must be able to justify the time investment the business will require; if not to him- or herself, to their spouse and children who will, without doubt, occasionally complain about the lack of time the family will be getting. The buyer’s spouse must be onboard.
Competition
When pricing a business, the business owner must be cognizant of the competition.
At any given time, there are thousands of businesses for sale and the seller has to recognize that all those other sellers are the competition. Buyers cast their nets wide when looking for opportunities that present the best chance of achieving a handsome return on their investment given the potential risks and time required to oversee that investment. When pricing a business for sale, competition must be kept in mind.
But a seller must also remember that the “competition” is not limited to other businesses.
Business buyers are, at bottom, investors. When we’re trying to make the case for the businesses we’re selling, we have to consider that, from the stock market and real estate to precious metals, artwork or even to more arcane financial instruments, there are dozens of markets – other than businesses – competing for the investor’s capital.
The Bottom Line
When pricing a business, the business owner must consider whether what he or she “needs” coincides with what the market is willing to pay. And in order to figure that out, they have to know what the market is willing to pay.
The only way to know this, of course, is to know what your business is worth – before coming to market.
The market value of your business will be reflective of not only its earning power but the also the competition in the marketplace and the inherent risk of buying and running a small, private business. Will the price you “need” allow buyers (investors) to realize a return on their investment sufficient to offset that risk? And will the price you “need” be competitive with the other opportunities the buyer can choose from?
Our experience suggests that when owners price their business based on “need” rather than value, the answer is generally “no”.
That answer underscores the importance of knowing what your business is worth. The cost of a professional business valuation will be dwarfed by the amount of time and money you will spend trying to sell an over-priced business
Find out how we start to calculate a business’ value in this YouTube video part 2 in a series we created on how to estimate the value of a business.
“You cannot build character and courage by taking away a man’s initiative and independence.”
– Abraham Lincoln
If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Joe
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The author is the founder, in 2001, of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 1,000 in the world. He can be reached at jo*@*******************og.com