Chapter 04

Setting an asking figure and a range

An asking figure is a negotiating position, not a valuation. It is chosen to attract the right candidates and to leave room for the concessions that a process always demands.

A range beats a number

A single figure invites a single response: a lower one. A range invites a conversation about which end applies and why. It also allows the seller to signal what would justify the upper end, such as a shorter payment period or a longer handover.

The width of the range says something in itself. Too narrow and there is nothing to discuss. Too wide and the seller looks unsure of what the business is worth.

What sets the level

Three things carry most of the weight. The level of normalised earnings and how stable they have been. The degree to which the business runs without its owner. And how easily a buyer can see the earnings continuing under different ownership.

Size matters more than most sellers expect. Larger businesses attract buyers with access to finance and a professional process, and that competition alone moves the level.

Anchoring

The first figure mentioned frames everything that follows, which is why it should never be improvised in a first meeting. A prepared range, with the reasoning behind it written down, prevents a number being given away in an unguarded moment.

Where the seller has a walk-away level, it belongs in a private note rather than in the conversation. Naming it turns it into the new starting point.

When the market disagrees

If several qualified candidates arrive at similar conclusions well below the asking level, the market is giving an answer. The useful response is to find out which factor they are all pricing, because it is usually a single identifiable risk: one dominant supplier, a channel in decline, or figures that could not be reconciled.

Fixing that factor is often worth more than defending the original figure.

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