Name a Price and You Have Set the Ceiling

There are two ways to arrive at a first number. You name one, or the buyer does. Only one of them can go in your favor.

Name one, and every buyer who would have paid more now pays what you asked, and you never find out which ones they were. Let the buyer name one, and you learn two things at once.

A buyer’s number is information. Yours is a cap.

The first thing you learn is what they will pay. The second is what they think they are buying, and that is frequently worth more.

A buyer who prices your contracted revenue high and your equipment at nothing has told you what they are actually after. That is the deal you build with them, and it is a different deal from the one you would build with a buyer whose number is concentrated in your capacity or your geography.

You cannot learn any of that from a response to your own number. A buyer answering an asking price tells you only whether they will pay it.

What it is worth

Illustrative. An owner ran a practice-management software company serving independent veterinary clinics. Her own view of the company was somewhere around thirty million dollars. She kept that view to herself and went to market without a price.

The first serious bid came in at thirty-four. It closed at thirty-seven.

The reason it closed there was not negotiating skill. The buyer wanted her installed base of clinics considerably more than she had understood anybody could. Had she opened at thirty, she would have been paid thirty, and she would have believed she had done well.

That last clause is the problem with this mistake. It is invisible from the inside.

The condition that makes it work

A buyer goes first only when they believe somebody else is about to.

One buyer talking to one seller has no reason to name a number at all, and will not. They will ask you for yours, wait, and eventually make an offer anchored to whatever you let slip, on their timetable.

So “do not name a price” is not a negotiating tactic you can adopt on its own. It is an output of running several credible parties at the same time. Without the field, silence is not leverage; it is just a longer wait.

Which also means you need your own number, privately

Not naming a price is not the same as not having one.

You need a defensible view of value before anything goes out, built from current transaction evidence rather than from what a competitor claimed at a trade show. That number is what you measure the offers against, what tells you whether the first bid is strong or weak, and what you can explain in a room when the buyer’s accountants come back with adjustments.

Keep it. Do not publish it.

Ask for an indication of interest instead

There is a document that does this work for you early and cheaply.

An indication of interest is two pages: a range rather than a number, how the buyer would structure it, where the money comes from, and what they would need to confirm before they could be specific. It is usually non-binding, though the name of a document tells you nothing about what binds you, so read which provisions do.

With eight interested parties, asking each for one tells you, at the cost of their work and almost none of yours, which three are serious, which one is a band apart from everybody else, and which were never going to pay what the company is worth. You learn that before you have spent a single management meeting.

A buyer who will not produce one has told you something. So has a buyer whose range is wide enough to commit them to nothing.

Do not let them price your situation either

The mirror of this mistake is a buyer who decides they know your position.

Illustrative. A founder whose largest outside investor was at the end of a fund’s life needed a sale on a timetable, and said so plainly, because it was going to come out anyway. One buyer heard that and concluded the seller was cornered. Their opening offer arrived forty percent below the asking price, framed as a rescue. The founder did not counter and did not reply. A second buyer, working from identical facts, offered something defensible, and the deal was signed with them before the first buyer had finished drafting a revision.

Nothing about the first buyer’s read was unreasonable. It was wrong, and it was wrong in a way that cost them the company.

Your reason for selling is information about you rather than a discount, and which of the two it becomes depends almost entirely on who presents it and how.

What getting it wrong costs

The gap between what you would have asked for and what somebody would have paid.

That number is unknowable afterward, which is exactly why owners keep making this mistake and keep concluding they did well. The owner who opened at their own number and got it has no way of knowing that one of the parties in the room had approval to pay a third more.

More on this: Your Asking Price Is Lowering What Your Business Is Worth; The Owner Who Had Two Buyers and Ended With Neither.

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This is what we do. Prism Edge establishes your number privately, off current transaction evidence, and then runs enough credible parties in parallel that the buyers are the ones naming figures. Every indication of interest gets read against your number and against each other, which is the only way to tell a strong first bid from a comfortable one.

The full chapter on developing the proposal is in The Business Sale, free to download here.