How does one determine how much to sell their business for?
Like if a store or restaurant was making between $100,000-130,000 dollars in revenue per year. --Not including expenses.
And the lot for the business was bought for $300,000.
If the business owner wanted to sell his business, what would he price it for? And how would he come to that price?
- ChuckLv 41 decade agoFavorite Answer
I have sold two established businesses in the past. The first was sold for a price that was roughly equal to 2.5 times the gross revenue minus cost of goods sold. The 2nd was sold for 2 times the average of the past 3 years audited net and 10% of the following two years net.
There are several options for determing the price of a business. The two main ways are by having 1: A professional appraisal done eithjer by using a business broker or through the use of business valuation software. Or 2: Using justifiable metrics to set a reasonable Fair Market Value. What is "Fair Market Value?
This term is used to determine the value of a business which is a "going concern." It includes the concept of "willing buyer and willing seller." Both parties must be interested in arriving at a fair price, and neither party should feel that he or she is being coerced.
The Three Most Important Things to Remember When Valuing Your Business
There is No Magic Formula
There is no set formula to determine the price of a business. Two busineses of the same type in the same location for sale at the same time may not sell for the same price, based on other intangible factorss. (Age of equipment, customer demographics, market niche) The process of selling a business involves a great deal of negotiation and compromise.
It is Difficult to Set a Price on Goodwill
One of the big reasons that it is difficult to find a magic formula for a business price is due to "goodwill." Goodwill is said to be the difference between the appraised value of the assets of the business and the selling price. In other words, it is the value of customer loyalty. The new owner may or may not be able to count on customer loyalty, so how does he or she know what to pay for it?
There is No Way to Predict the Future
It has been said that the business you are selling is not the business the new owner is buying, because the business changes in character from the day the new owner steps in. The intangible factor of the owner's personality, his or her relationship with customers, employees, and vendors, can and will change the business to something new and different