Your Asking Price Is Lowering What Your Business Is Worth

An asking price set too high does not simply fail to get you that price. It reduces what anyone will pay, and it keeps reducing it for as long as the company sits there.

Most owners understand the first half of that and not the second. They treat a high ask as a free option: start high, come down if nobody bites, nothing lost. Something is lost, and it compounds.

Time on market is the mechanism

A buyer looking at your company in month twelve is not looking at the same company a buyer saw in month one. He is looking at a company that twelve months of buyers have already passed on.

He does not know why they passed, and he does not need to. He assumes either something is wrong with it or the owner is unreasonable, and both assumptions price the same way. You are now arguing against an objection you cannot see and were not in the room for.

That is what makes a high ask expensive rather than merely optimistic. It is not that you fail to get your number and then settle for the real one. The real one moves while you wait.

The buyers who took you seriously are the expensive ones to lose

The tire-kickers cost you nothing. The ones who cost you are the serious buyers who believed your number.

A real buyer who takes your price at face value opens diligence. He puts his accountants into your financials and his lawyers into your contracts. That is weeks of his people’s time and real money out of his budget. Then he works out that the company is not worth what you are asking, and he stops.

He has bought nothing and spent plenty. You are not on his list of favorite people, and he talks to other buyers.

If your supporting documentation was thin on top of that (add-backs with nothing behind them, a customer concentration number nobody could reproduce), then the read is worse than optimistic. It looks careless at best.

Your competitors get a free weapon

An asking price does not stay private. It reaches people who sell against you, and they will use it, and you will not be in the conversation.

The argument writes itself: if his price for the company is not fair, is his price for the work fair? It moves from a valuation disagreement to a question about how you do business, which is a much harder thing to answer and a much longer thing to live down.

What this looks like in practice

A precision machining shop, two plants, long-tenured crew, owner in his sixties. He had an outside valuation in a drawer and an opinion that it was conservative, so he went out well above it.

Fourteen months later he had seen six buyers. The first two were credible and both walked after diligence. The next four priced him by what they would have to fix, which is what buyers do when something has been available for a while, and every offer came in under the one before it.

He eventually sold below the number in the drawer. Not because the valuation was wrong. Because by the time he accepted it, fourteen months of exposure had made it optimistic.

Illustrative. Not a Prism Edge engagement.

Where the number should come from

The most common method is the worst one: your earnings times a multiple you heard at an industry dinner. It feels like math. It is a guess wearing math’s clothes, because it skips the two questions that determine the answer — what your earnings actually are once they are normalized, and why a buyer would pay that multiple for your company rather than the average one.

Comparable transactions are better evidence, and the difficulty is never finding numbers. It is knowing which of them are comparable to you. Two companies in the same industry at the same earnings get priced very differently on customer concentration, contract quality, management depth, and who the buyer was and why they wanted it. A figure drawn from companies that do not match you on those dimensions is a coincidence with a decimal point.

What moves the number is not the method anyway. It is risk. Two companies with identical earnings are not worth the same money, and the gap between them is the buyer pricing what could go wrong after you leave. Second line of management, largest customer under 10%, reviewed statements, documented procedures: that company trades higher, and no amount of negotiation closes the distance, because the distance is not a negotiating position.

Get the number right before buyers arrive. A defensible price you can show your work on pulls a serious buyer toward your side of the table, because it tells him you have thought about the things he is about to ask.

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This is what we do. Prism Edge puts a defensible number on your company before it goes to market: normalized earnings, comparables that are actually comparable, and the risk factors a buyer will price. An asking price you can show your work on behaves differently from one you have to defend.

And the full chapter on this is in Selling Your Business The Easy Way, free to download here.