Fit is when broker, buyer, and seller come together in a collaborative way to determine if an anticipated transaction makes sense.  Many times fit is not about money.  Clearly a new owner must have background and experience that is transferable and fits with the needs of the business.  And the outgoing seller must transfer knowledge, customer relationships, technology, etc. to the buyer before it's possible for the buyer to fit into the buinsess.  Good communication and clear expectations between buyer and seller makes finding the right "fit" possible - that's a shared responsibility to the business going forward.

In a previous blog, I stated that 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 buisness actually sells. 

How so?  The primary reason is that the broker's opinion of selling price is based on a retrospective view of the company's performance and not on a forecast of future earnings streams as is the case for the appraiser's opinion.  In other words, the past financial performance of the business is viewed by brokers and sellers as a predictor of future performance.  For appraisers, the past performance of the business is given limited consideration in determining the present value of the business and hence what it might sell for.

The recession has created serious doubts in the minds of many potential buyers who erroneously equate the future of business ownership with the future of the real estate market.  There is no "good time" or "bad time" to buy a business.  The purchase has to make financial sense in any market.  Further, the recent volatitlity in the equity markets ex-emplifies the fact that investing is not for the faint hearted or amateurs.  So why buy a business now?

Four reasons:  (1)  The buyer has more control over the investment and can expect a higher financial return for each dollar invested; (2)  Many buyers will sit on the sidelines thereby decreasing the competition for good oppotunities; (3) In a recession, valuations are typically lowered by declining financial performance, yet the business and its intrinsic value will increase as the economy improves; (4) The motivation of business owners to sell increaes if they are facing another difficult year.

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.