Pricing Businesses for Sale or Acquisition

May 28, 2024

There is an old saying in real estate related to pricing a property for sale, “Price it right, it sells overnight.  Price it wrong, it stays on too long.”  The same principle is true related to the sale of privately held companies and family businesses.  As an over thirty-year mergers & acquisitions intermediary and a management executive in the industry who has personally mentored dozens of business brokers on the pathway to high levels of professional and financial success, I have identified five areas where superior business sale intermediaries separate themselves from average business brokers and average professionals from poor ones.  The common characteristic for all five activities is that they require knowledge, experience, and skill to do at a high level, items that cannot be gained without sufficient time and achievement.  The five areas where business broker achievement and ability can be assessed with clarity are as follows:

  1. The ability to accurately price businesses.
  2. The ability to create a robust, competitive marketplace in a confidential environment.
  3. The ability to get parties to “YES” in a negotiation.
  4. The ability to problem solve articulately without emotion providing a menu of potential move forward options.
  5. The ability to incorporate relevant parties & resources into the sale process when external, enhanced knowledge, experience, & skill are required.

The proper pricing of a business is a sophisticated, nuanced subjective science requiring accounting, finance, investment, and market knowledge.   The parties possessing the strongest ability to properly value privately held companies and family businesses have LOCAL, industry specific, transactional knowledge.

Weak and inexperienced business brokers will rely on national composite information similar to that found in publications like the Business Reference Guide (  Publications like this one can be a starting point for business valuation, and IBA, in full disclosure, has served as an industry expert for the publication in the past.  However, three factors make relying on the information a less than prudent action.

  1. The information compiled in the guide is incomplete. Unlike real estate sales, information on most business sales is not reported in the public domain.  Sales between partners, family members, parties directly without professional intermediation, or facilitated by attorneys and accountants are often not reported.
  2. Less than 100% of business brokerage and M&A firms provide information to industry resources.
  3. The motivation for sale is not a factor incorporated into the creation of composite multiples. A business being sold due to death or health issues will commonly sell for less than one that is a coveted strategic acquisition by competition.

However, these flaws in utilizing national comparables and composite multiples overlook the most significant reason their benefit for assessing the market value of a company is circumspect. The reason is intuitive and logical.  It applies to vehicles, real estate, and businesses.  The reality is that pricing and value are driven by local market conditions.  In pricing a business, local influences on value include competition, growth potential, labor, and occupancy availability & rates, taxes in a specific jurisdiction, and buyer demand.  The core calculation for valuing a business is net profit (EBITDA) times a multiple.  EBITDA (Earnings Before Income Tax, Depreciation, and Amortization) is easy enough to calculate and the process is substantially similar in all places.  The subjective element is the multiple employed in valuation.  The task for a mergers & acquisitions intermediary is to arrive at the right multiple (Broker Note: IBA calculates multiples to two places to the right of the decimal.) and justify the multiple to a seller, buyer, CPA/CFO, bank, and/or investors.

The following examples illustrate the impact of local factors on business valuation.  A retail business located in Seattle, Washington had gross revenue of $2,000,000 in 2023. The minimum wage rate requirement in Seattle is presently $19.97 (  Another retail business doing $2,000,000 annually is located in Bellingham, Washington where the minimum wage requirement is $17.28 per hour.  Recognizing that minimum wage is the platform all other employee compensation is built upon, which of the two companies would likely be more profitable the one with the higher wage structure or the one with the wage structure 15.6% less at its starting point?  Should the same multiple in valuation be applied to both businesses located in cities where IBA has offices and offers local representation? IBA would not use the same multiple.

Now let’s add another factor for consideration, taxes.  After all, which is more important to an entrepreneur the amount of gross sales or the amount of income taken home annually?  IBA was founded in Portland, Oregon in 1975 and is the oldest, continuous operation business brokerage firm in that state.  Oregonians pay the second highest income taxes, behind Massachusetts, in the United States, 23.37% on average (  As comparison, people living and working on the north side of the Columbia River in the Portland suburb of Vancouver, Washington only pay 18.27% on average, a reduction of 5.10%.  Ask yourself, which part of the Portland metropolitan area would you rather earn a dollar in the one where you take home a nickel less per dollar or the one where you get to keep the 5 cents. Think employees do not take this into consideration when interviewing for jobs or business owners when competing for available staff talent?   Now extend that question, to whether a manufacturing company in Portland, Oregon or Vancouver, Washington would be more attractive to business buyers.  Say hello to a valuation factor called market demand.

How is market demand knowledge incorporated into the pricing a business, if a business broker does not know what is going on in the local market or that industry?  Think about it this way, if you were selling a Monet Painting (, a one of a kind entity, just like every business, would you want someone who has never sold a Monet representing you in the sale or someone who has sold numerous of his paintings who can persuasively convey the value and opportunity being presented.  It is always recommended to select a sales professional to represent your interest with the highest-level of possible experience, knowledge, and skill.  In the Pacific Northwest, that is IBA.  We have sold more businesses than anyone else over the last fifty years in Washington & Oregon.  We are also not generalists, but industry ( & geographic area ( specialists.

Business valuation is the starting place for the successful sale of a privately held company or family business.  A business that is priced too low will leave dollars on the table that could have been used for retirement, legacy, or philanthropy.  A company that is priced too high will not sell.  Ultimately, it is up to the M&A intermediary selected to justify the price to the marketplace.  That is why prudent entrepreneurs select business brokers that are 100% compensated on performance with no payments being made related to the sale until it is completed.  A business sale is often a life changing event for an entrepreneur.  A performance compensated broker is investing time, energy, and resources in pursuit of a common goal with their client with no safety net where they benefit if they fail.  IBA only desires to be paid by happy clients when we have delivered a completed transaction.  We engage in this business model because our business brokers are in the top tier at what they do nationally and have confidence in their abilities as professional salespeople.  If you want to know what your business is worth, IBA offers a complimentary professional opinion of company market value to potential clients.  We view the activity as an opportunity to share our knowledge, experience, and customer service risk fee to entrepreneurs considering a sale of their Pacific Northwest business.  All conversations are held in strict confidence. No business broker has more local offices, business brokers, or completed transactions, 4300+, than IBA serving Washington & Oregon.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, legal, and accounting communities on subjects relevant to the purchase & sale of privately held companies and family-owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.