An interesting article in The NZ Herald by Susie Nordqvist on September 20th regarding the common house sales tactic of setting a higher price and negotiating down is back firing because the buying public is ignoring the listing:Common sales tactic backfires

This is also very much the case in the business sales area. Business owners are often being told “what they want to hear” by unscrupulous brokers desperate for a listing. The business is then listed at this unrealistic price and often sits on the brokerages’ books for 6 months to a year with nothing happening.

This happening is a far more risky proposition for the business than for a property sale. The longer the business is on the market:

• it becomes more and more difficult to maintain confidentiality
• the owner often loses focus on the day to day operations of the business
• Staff can become very unsettled if they suspect the business is up for sale
• Customers and suppliers can also become unsettled
• More scrupulous brokers won’t be interested in the business after it has been marketed this way
• Often the owner finds it incredibly difficult to get their ‘head’ back into the business after this type of process and the business falters

We see this type of problem happen all the time. A business owner will do the rounds of all the Brokers here in Auckland. When they come to us we tell them what we feel the business could sell for based on the current trends, banks appetite for lending in their category and most importantly how robust the business' future maintainable earning are. We give the owner our thoughts on value and the process we would follow. When we follow up this owner they tell us that they are going to go with another company, which is fine, but when we enquire what the other company’s thoughts on a value were and more often than not the reply is:

‘They asked us what we wanted for the business and then added their fee on the top and that is what the business will be listed at.’

Not a lot of science in that approach you would agree, but a number of the larger business brokerages follow the Real Estate methodology of concentrating on getting listings at all costs.

In these current times buyers just won’t waste their time responding to a business that is obviously overpriced. They are a discerning bunch at the best of times but in a recession even more so. A buyer skimming through the listings promoted by any brokerage can simply do some mental arithmetic by dividing the sale price by the stated profit, and if that ROI is unrealistic they just won’t enquire. This, as Susie states in her article, is the core buying audience and if they don’t enquire then who will?

This now is being combated by these brokerages by them not listing the sale price (or profits) on their opportunities. You can almost guarantee if an opportunity has no sale price (or profits shown) then the brokerage is embarrassed by it.

Paul and my thoughts are that if a business owner comes to us, and we appraise that business for sale purposes, we are doing him/her and ourselves a disservice if we tried to buy the listing by overstating the sale price. The business won’t sell and will be opened up to the risks I previously stated and we will put in a year’s work trying to sell something that can’t be sold.

A business is worth to some degree, in this current market climate, what a financial institution is willing to finance, so if you are dealing with a broker ask yourself are they just telling me what I want to hear. Are they just trying to buy the listing?

If this is the case then there is a good chance your business will be still on the market a year later.