If you’re thinking about selling your company, one of the first things you will need to consider is how to price a business for sale. It sounds simple, but it really isn’t.
We regularly see founders fixate on a number far too early. Once that happens, everything else becomes harder. Buyers often anchor to it (even if it wasn’t meant to be a firm price), and then advisers have to work around it. This can stall deals before they really begin.
Pricing should not be guesswork, and it should not be driven by optimism. You should think about price properly, with the right financial input, before you raise the topic with any potential purchaser. Read on for some of our best tips on how to price a business for sale…
Do NOT “Guesstimate” The Price
Founders often start with a figure that “feels right”. That feeling usually comes from all their years of effort, risk-taking and hard work. But buyers don’t price businesses that way. They weren’t there for all the hard graft – their main concern is “how much this business is likely to make me?”
Pricing is primarily a financial exercise. You should involve your accountant or a financial adviser early, before you speak to buyers or brokers. Once a number is mentioned, it is very difficult to walk it back without losing credibility.
Not all accountants are suited to this. Preparing annual accounts is not the same as pricing a company for sale. If your adviser has never supported a business through a sale, their input may be limited. At JPP Law, we often introduce clients to accountants and financial advisers who deal with transactions regularly and understand how buyers think. If you would like an introduction to a specialist accountant please email [email protected].
What Buyers Actually Look At
When deciding how to price a business for sale, you need to look at your company through a buyer’s eyes.
Buyers focus on what they can verify and rely on, not what might happen in the future. They tend to care about:
- Consistent profits rather than one good year
- Cash flow that repeats
- Customer relationships that survive the sale
- How dependent the business is on you
- Clear and reliable financial information
Future growth plans matter far less than founders expect. Unless growth is already visible and supported by data or contracts, buyers usually discount it heavily. And who can blame them! They’re taking a risk to buy your business, and they want to be sure they’re getting a good deal.
Valuations Are Not an Exact Science
There is no single formula for how to price a business for sale. Most pricing involves a degree of personal judgement.
Some buyers look at earnings multiples. Others focus on future cash flow. Asset-heavy businesses attract different thinking compared to service or tech businesses. And the same company can attract different views from different buyers!
This is why early financial advice is so important. A good adviser will not just give you a number. They will explain how that number might be challenged during due diligence and where buyers are likely to push back.
Unrealistic Pricing Causes Problems
An inflated price can waste months. Buyers may lose interest once the detail comes out, or they may chip away at the price until the deal feels painful.
We often see deals fall over late because the original price did not match the evidence. By that point, legal and advisory costs have already mounted.
A fair and realistic price usually leads to better conversations and smoother negotiations. It also gives you more room to agree sensible terms elsewhere in the deal.
Be Careful with Timing and Preparation
Your business does not need to be perfect before you sell it, but preparation certainly helps!
Sometimes small steps make a big difference. Cleaning up management accounts, reducing reliance on you personally, or fixing obvious issues that buyers will flag early can all support pricing discussions. Accountants and financial advisers can help you focus on what genuinely affects value.
Back Up Your Pricing with a Good Deal Structure
If a buyer struggles with price, structure can sometimes help.
You might want to think about options like deferred consideration, earn-outs or seller finance. These can all bridge gaps if your buyers feel uncertain. They might also improve saleability, BUT they do carry risk, so think carefully about anything you decide.
You should always take advice before agreeing to them. A higher headline price means very little if the structure exposes you to long-term risk or dispute.
Avoid Talking Price Too Soon
One of the most common mistakes we see is discussing price too early and too casually.
Once a buyer has a number in mind, it becomes the reference point for the entire deal. Changing it later is difficult, even if you feel the change is justified.
Thinking carefully about how to price a business for sale before those conversations start puts you in a much stronger position.
How JPP Law Can Help
JPP Law advises business owners across England and Wales on company sales and exits. We work alongside accountants and financial advisers to help clients avoid common pricing mistakes.
If you are thinking about selling your business and want to sense-check pricing, structure, or adviser support, we can help. We can also introduce accountants and financial advisers with the right experience if your current advisers are not a good fit.
To speak to a solicitor or request an introduction, contact JPP Law using the form below.
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