SELLING YOUR BUSINESS
Sell Your Business
Putting a price tag on your business, or deciding how much to sell your business, can bring you into unknown territory. No one wants to sell their business for below value, and of course no one wants to overpay. So what are some standard considerations which come into play?
Asset Valuation: This method can be used for retail or manufacturing firms, especially those for which income has fallen flat or have closed. It involves calculating the fair market value or replacement cost of the business’ assets.
Sale Price of Similar Businesses: Comparing how much others have paid for similarly businesses can be very useful in the valuation process. However, the value of this information is correlated to just how similarly the businesses are: are they in similar locales, with a similar market base, with similar assets and a similar outlook?
Income Approach (Cash Value): This approach is usually applied to businesses with several years of profitable activity. It involves calculating the amount of income the owner can expect to enjoy based on past performance of the business. This amount (discretionary earnings) is arrived at after adding back all owner benefits, such as return on investment, a living wage, personal expenses, depreciation, debt service expenses, and others. An appropriate multiple is then selected (based on market and financial factors) and applied to arrive at the valuation.
Valuing a business is a critical and complex process. Seeking the advice of an expert is often advisable.