Anonymous asked in Business & FinanceInvesting · 1 decade ago

What is the price multiple to sell a business?

My friend is selling his private company (a retail business) that is doing well. How much price multiple can he get for his company, compared to its net profit or EBITDA?

3 Answers

  • Anonymous
    1 decade ago
    Favorite Answer

    There is no simple answer to a question like this.

    The lowest price he can expect is the net asset value of his company and the highest price will be whatever someone else thinks it is worth. There is no simple multiple which can be used.

    There are many questions any potental purchaser may have which will determine for him what he thinks it is worth.

    Assuming that the business is profitable a simple rule of thumb may be as follows:

    Risk free return on a long term investment may be in the order of 6%

    With risk involved you may then be looking for (say) 12%

    If you have to be personally involved in the business all day every day you may be looking for (say) 20% so whatever investment you take on you would want that return as a minmum

    If the business makes an ebitda of say 50,000 per year, you might equate that to an investment of (say) £250k ie 50,000 x 5

    If the net asset value was significantly more or less than this it would obviously impact the valuation.

    a couple of the important considerations a prospective purchaser may have are "how much would it cost me to start this business from scratch and to what extent does it rely on the expertise of the current owner"

    there are too many variables. I suggest you look for a book on the subject in Waterstones or some other good bookshop

    or even better get some professional advice.

  • 1 decade ago

    Just like buying or selling a house, you look at comp's (comps is short for comparable transactions or comparable companies). That should be a good way to start -- seeing what other similar businesses has been bought or sold at.

    Good luck.

  • 1 decade ago

    Yes, get advice from strangers on the internet about this. Always a wise business move.

    The answer is, your friend should get as much as he can for it.

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