Determining Value

Are you asking yourself, “How do I value my business to sell?” or “How much is a business worth?”

Whether you have a business for sale or you are looking to buy a business, the information here should help. There are many things that need to be investigated when businesses change hands. The first is the actual value.

There are several methods used to estimate a business’s value and an asking price. Most owners will contact a Business Broker or a CPA for help with that.

You might just be thinking about selling a business. You might not be ready to contact anyone yet. If that’s the case, you can get a rough idea by using this formula.

Take the total that your business earned last year, not your net profit. Your total earnings are equivalent to your net profit plus taxes, interest and amortization expenses.

So far, that’s pretty simple. It does get a little more complicated.

The most common method used to estimate a business’s total worth is to multiply the previous year’s total earnings by a figure between 1 and 10. In order to find out what multiple to use, you might contact a trade association to find out what other small companies in your industry and your area have sold for.

If you do decide to put your company up for sale, the easiest thing to do is to contact a local business broker in your area. It is also more accurate than trying to come up with a value on your own.

Owners that try to sell their own businesses may underestimate or overestimate. They may set the asking price too high, which will mean that they have few interested buyers. Another drawback is that you will have people calling you that may or may not be qualified. One of the broker’s responsibilities is to interview and screen potential buyers.

If you are looking for a business that’s for sale in your area, your best source of information is a broker. Not only does the broker help the seller, he or she helps the buyer by performing the due diligence.

Depending on the business, there could be over 100 points that need to be investigated during the due diligence process. For example, the points to be investigated during the due diligence process of a restaurant purchase include the transferability of the lease, the arrangements made with suppliers, the results of recent health inspections and many others.