The Seller wants to receive a fair value for their business and the Buyer needs to see the worth in acquiring the business. This may sound simple, but it is not. The Seller's perception of a fair value for his business may not be the same as fair market value, which is the price that is occurring in the market place. The Seller may not be motivated enough to settle for fair market value if it is less than their perceived fair value based on their own preferences and circumstances. On the other hand the Buyer may say "Yes, I see the fair market value and how it was derived but the business is not worth that much to me."
Why these different views? Because the terms used have different meanings.
Value is explained as "relative worth with respect to excellence, usefulness, importance and high esteem." Example: The owner of a tow truck may say he will sell it if someone agrees with his view of its value. A Buyer may reply that he see other trucks at the same price with more worth.
Worth means "good enough or important enough to justify - as in 'is it worth buying." Example: One person will buy a certain make of car because they believe in its worth at the given price, while another person may not see that worth. One sees the justification in buying but the other sees no justification in the purchase.
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Different Buyers may determine different worths for a business, and each one can be correct because the differences in value result from differences of opinion regarding the company's strengths, weaknesses, historical operating success and differing assumptions regarding its future success.
A Seller can sell their business for an excellent price when a Buyer is found who places the worth of the business at or over a value acceptable to the Seller. This can occur when the Buyer's perception of the future of the business is different than that of the Seller.
The true value of a business is the fair market value as defined by IRS ruling 59-60:
"It is the price a willing buyer will pay for a business and a willing seller would accept if the buyer possessed all the relevant information about the seller's business and the seller was not under any compulsion to sell."
Price is the amount paid when a business changes hands. Price may or may not be related the Seller's perception of value.
A successful sale is one where the Buyer has a perception of worth that is near, equal to or more than the Seller's perception of value and the price is acceptable to both parties.
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