How to Price a Company for Sale: Business Pricing and Appraisal Guide
Pricing a business correctly is one of the most consequential decisions in the entire sale process. Set your asking price too high and you deter serious buyers, your business sits on the market too long and it becomes stigmatised as unsaleable. Set it too low and you leave significant money on the table. Getting the price right from the outset, based on a credible, professionally grounded appraisal, is the foundation of a successful business sale. This guide explains how to price a company for sale, what methods professionals use and how to arrive at an asking price that attracts serious buyers and stands up to scrutiny in due diligence.
Get a free business appraisal on World Businesses For Sale before setting your asking price.
How to Price a Company for Sale
The starting point for pricing any company for sale is calculating the adjusted profit, also known as seller's discretionary earnings or EBITDA depending on the size and structure of the business. Adjusted profit is the true commercial profit of the business after adding back all owner-specific costs including excessive owner remuneration above a market rate salary, personal expenses run through the business, one-off costs that will not recur under new ownership and non-cash charges such as depreciation and amortisation where relevant.
Once you have your adjusted profit figure, the asking price is typically calculated by multiplying this figure by a sector-appropriate earnings multiple. The multiple reflects the quality, sustainability and growth potential of the business and varies significantly by sector, business size, revenue model and market conditions.
Business Pricing: Earnings Multiples by Sector
Earnings multiples vary widely by sector and business type. Small retail and hospitality businesses typically sell at one to two times adjusted annual profit. Trades and service businesses typically sell at one point five to three times adjusted annual profit. Professional services firms sell at two to four times adjusted annual profit. Technology and software businesses sell at three to six times adjusted annual profit or higher for SaaS businesses with strong recurring revenue. Healthcare businesses including dental and medical practices typically sell at one to three times adjusted annual profit. Manufacturing businesses with strong order books and proprietary products sell at three to five times adjusted annual profit.
These are indicative ranges. The actual multiple achieved depends on the specific quality of the business, the depth of buyer competition, prevailing market conditions and how well the business is prepared and presented for sale.
How to Appraise a Business for Sale
A professional business appraisal goes beyond simply multiplying profit by a multiple. A thorough appraisal considers the quality and consistency of revenue over time, the diversification of the customer base, the sustainability of profit margins, the strength of the competitive position, the quality and depth of the management team, the transferability of key relationships and contracts, the physical and intellectual property assets of the business, any outstanding liabilities or legal risks and the current state of the market for businesses of this type.
Each of these factors can move the applicable multiple up or down from the sector average. A business with strong recurring revenue, a diversified customer base, a capable management team and no key person dependency will command a premium multiple. A business with concentrated revenue, owner dependency and thin margins will be discounted accordingly.
Get a free business appraisal on World Businesses For Sale to understand where your business sits within the range for your sector before setting your asking price.
Pricing a Business for Sale: Common Mistakes
The most common pricing mistake is setting the asking price based on what the owner needs to fund retirement or their next venture rather than what the business is actually worth to a buyer on commercial terms. A buyer will pay a multiple of verified profit, not a figure based on the seller's financial needs. Other common mistakes include failing to normalise owner remuneration before calculating adjusted profit, including one-off revenues or non-recurring profits in the profit calculation, setting the price before obtaining a professional appraisal and failing to account for any debt or liabilities that will be assumed by the buyer on completion.
How to Value a Company for Sale vs How to Price It
Valuation and pricing are related but distinct concepts. Valuation is the objective assessment of what a business is worth based on its financial performance, assets and comparable market transactions. Pricing is the asking price the seller sets, which may be at, above or below the independent valuation depending on the seller's strategy and market conditions. The best approach is to obtain an independent valuation and set your asking price at or close to the valuation figure, leaving a small amount of room for negotiation without pricing so high that serious buyers are deterred from engaging.
Frequently Asked Questions
How do I price a company for sale?
Calculate your adjusted profit, apply a sector-appropriate earnings multiple and validate the result against an independent professional appraisal. Get a free appraisal here.
What multiple should I use to price my business?
Multiples vary by sector from one to two times for small retail and hospitality businesses up to four to six times or more for technology and SaaS businesses. The right multiple for your business depends on its specific quality, revenue model and market conditions.
What is the difference between a business valuation and a business appraisal?
A valuation is a formal assessment of worth, often prepared by a qualified professional for legal or transactional purposes. An appraisal is a practical assessment of market value for the purpose of setting an asking price. Both use similar methodologies but may differ in formality and purpose.
How do I avoid overpricing my business?
Base your asking price on a credible independent appraisal rather than your financial needs or an optimistic projection. Get a free appraisal on World Businesses For Sale before you set your price.
Price Your Company for Sale Correctly Today
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This article provides general information only and does not constitute legal, financial or professional advice. Always obtain independent professional advice before making decisions about selling your business.