An asking price is a starting point for discussion. Before treating it as a budget or a valuation, find out what is included and which information supports it. Two businesses advertised at the same price may involve different assets, operating commitments and handover arrangements.
Clarify what the price includes
Ask for a written description of the proposed sale. Note how inventory, equipment and other included items are described, and identify anything that remains to be agreed. Bring the description to your accountant and lawyer so they can assess the structure and its implications. Do this before comparing the headline number with other listings.
Understand the valuation approach
BusinessesForSale.com’s valuation guide discusses the role of assets, earnings and comparisons with other businesses. It also stresses that the method should suit the business. A professional assessment should explain its assumptions and the information used. A number generated from a short online form can prompt a discussion, but the underlying records still need review.
Ask how earnings have been assessed
BDC describes income, asset and market approaches to valuation. In an income approach, understanding the earnings figure matters as much as the method applied to it. Ask your accountant to review proposed adjustments and explain which expenses a new owner would still incur. Keep an adjustment schedule with supporting evidence so the same expense is not treated differently in each discussion.
Compare businesses on a consistent basis
BDC’s market approach uses sales of comparable businesses. For a Vancouver-area comparison, ask what makes the example comparable and which differences matter. An advertised asking price shows what a seller requests; it does not establish what a completed transaction achieved. Record the source and date of each comparison you rely on.
Work through an illustrative comparison
Imagine two businesses each advertised for $250,000. In one, the seller proposes to include certain equipment; in the other, those items are described separately. Before drawing a conclusion, write down the inclusions beside each price. Then ask your advisers which other differences require investigation. These are hypothetical figures, not local market estimates or valuations.
The purpose of this exercise is to improve your questions. It does not tell you which business is the better purchase. A useful comparison sheet leaves space for “not yet confirmed” rather than replacing missing information with an assumption.
Consider terms alongside the amount
Ask when payments would be due and which conditions are proposed. Make a separate note of handover commitments and any matters your advisers need to resolve. A price discussion becomes clearer when everyone is referring to the same proposed package. Do not assume that agreement on a number settles the rest of the transaction.
Prepare for a pricing conversation
Sellers can start by assembling the records they want an adviser to review and a clear description of the proposed sale. Buyers can start with the information gaps that prevent a meaningful comparison. BDC recommends involving qualified valuation expertise; ask your accountant or lawyer who is appropriate for the business and purpose of the assessment.
Read Preparing to Sell Your Business in BC for the seller’s next steps, or the buyer’s checklist if you are starting a search. Contact Thomas Lau to discuss your plans for a Vancouver or BC business transaction.
Sources and further reading: BusinessesForSale.com’s valuation guide and BDC’s business valuation guide. This article is general information, not a valuation or financial advice.