Business brokers are frequently asked by owners to tell them what their businesses are “worth” for the purpose of establishing an asking price. However, business brokers don’t assess the worth, or value, of businesses - that is the job of business appraisers. Rather business brokers analyze the business for the purpose of establishing an asking price that makes sense to the owner and prospective Buyers and for initiating negotiations. So the question is less about value or worth of the business and more about what a prospective Buyer might be willing pay for the business given an entire array of special circumstances.

As a business appraiser, I value businesses for a wide variety of reasons using a rigorous set of approaches, methods, and analytical tools to arrive at a present value for the business. The standard of value is typically the Fair Market Value for buy/sell purposes, and the value of the business is established as of a specific date. Even though a formal appraisal results in a stated value, typically that “number” is not the asking price recommended by the business broker nor is it the price at which the business actually sells. Why this is the case will be the topic of a future article.

As a business broker, I help the owner establish an asking price for the business by analyzing some of the same information I analyze as an appraiser. This includes the assessment of a whole host of factors that directly or indirectly, positively or negatively affect the initial asking price and influences the perception of value in the mind of the Buyer. These factors include:

So what is the role of the business broker during this process? The primary role, and some would say duty, of the business broker is to place an asking price on the business that a) is close to the price the Seller would like to receive, and b) is supportable based on all relevant factors. When a specific Buyer enters the picture, the business broker accentuates the attributes of the business that fit with the Buyer’s needs and seeks ways to successfully structure the transaction – all in support of the asking price.