Why Are Similar Businesses Priced Differently?
If you look around at all the different businesses for sale on the market – you will quickly find that businesses that seem similar have vastly different asking prices.
In this article, we’ll outline why similar businesses for sale, are priced differently.
1. How Long Has The Business Been Established?
A business that has been operating for a longer amount of time than similar competitors will often be priced higher. This is because of the greater reputation and brand power that has been acquired over time.
The brand name that has been built, popularity of the business and brand, market share and reputation are factors that make the business more stable, and so contribute to a higher price.
So, the longer the business has been in operation, the more likely you will see a difference in price compared to other businesses.
2 Barriers To Entry
This relates to how many competitors the business has, any restrictions of trading, start up costs, among other things. The higher the barriers to entry – that is, it is harder for competitors to get into the same positioning, licensing, operating hours etc., the higher the price of the business tends to be.
3. Lease Terms
If a long lease is in place, it provides a higher level of security for the the business buyer. The buyer can enter the sale knowing that they will be renting the business premises for an amount of time that will allow for return on investment on their business acquisition.
Conversely, if a short lease is in place, and new lease terms have not yet been negotiated, this can greatly bring down the price of the business, as there is higher uncertainty if the buyer will have enough time under the lease to generate a return on investment.
4. Owner Wants A Quick Sale
Quite often, an owner simply wants to get out as soon as possible. This is often due to ill health, or larger commitments elsewhere. Whatever the reason, you will often find an owner is willing to sell well below market value, in order to achieve a quicker sale.
The Buyer Market Sets The Final Sale Price
The ultimate factor that contributes to the asking price – or rather, the final sale price – of a business is the buyer market itself. A business will only be sold for as much as the highest bidder is willing to pay.
This, along with the factors considered above, all contribute to the fact that seemingly similar businesses are offered for different sale prices. The buyers market contains a diverse range of investors with differing buying capacities.