Arriving at a value for your business requires consideration of various factors, including its financial performance, past and present, current position in the market, and also comparable sales.
Comparable sales are the sales prices of businesses that are similar to yours in specific ways. They help professional business valuers to arrive at a fair and accurate business valuation based on the current market.
Comparable sales support a business valuation
When you have in mind a potential selling price of your own, comparing the sales prices of similar businesses within certain parameters can either offer reassurance that you’re in the right range, or that you may need to reconsider.
Your business’ valuation can be borne out and supported by the use of comparable sales – a form of statistical corroboration that offers you justification if prospective buyers suggest an unrealistic asking price has been set, and that the value placed on the business is too high.
So what factors typically constitute a comparable sale, and how can comparable sales influence the sale price of your business?
What factors make business sales comparable?
When using comparable sales, a number of different elements may be taken into account, including:
- Proximity to the business that’s for sale – a defined radius from the area in which your business is located
- When the sale took place – how far back in time a comparable sale will be used
- Recent revenues
- Business size – in terms of staff numbers, for example
- Age of business – businesses of a similar age to yours
- Price/Earnings (P/E ratio – for comparing the prices of businesses that have been profitable for some time, operating in the same sector as yours
When taken together, the elements that constitute a comparable sale help to provide a realistic value based on real-world transactions from recent times. Although not a standalone method of valuing a business, comparable sales provide a helpful perspective that adds weight to a professional assessment of past performance, current business status, and future potential.
When would comparable sales be used?
Determining value in a business sale
Comparing sales prices of other similar businesses that are comparable to yours in the ways described above, can help you to determine a fair and realistic market value for your business, so aiding the sales process and encouraging a quicker, smoother transaction.
Justifying the value to prospective buyers
Comparable sales can be used in negotiations to defend the asking price of your business to prospective purchasers – potential buyers who may try to negotiate you down without real justification. In this respect, comparable sales can positively influence the sale price of your business.
Comparable sales can also be used by purchasers
Buyers can put forward their own set of comparable sales to contest the value you’ve placed on your business. If the value given to your business is significantly higher than that of other similar businesses that have sold recently, it can negatively influence the ultimate sale price of your business.
Contact Selling My Business for guidance on how to use comparable sales
If you would like more information on comparable sales, and how they can influence the sale price of your business, our director-led team at Selling My Business can help. Selling My Business has extensive experience of conducting successful business sales transactions across all industries.
We will provide reliable independent advice and support throughout the sales process, and operate from a network of offices around the country. Please get in touch to arrange a free, same-day consultation and free business valuation.