A business will likely sell for two to four times seller’s discretionary earnings (SDE)range –the majority selling within the 2 to 3 range. In essence, if the annual cash flow is $200,000, the selling price will likely be between $400,000 and $600,000. The first step to finding out what your business will sell for is determining its market value.
There are several methods for determining the market value of your business. For one, you can calculate the value of all of your assets, i.e., equipment, inventory, etc. In addition, you can base it on a comparison of current revenue and profits compared to like sales that have occurred in the past. In other cases, there is a formula that multiplies earnings. Whatever the case may be, one or a number of these can help you find your business worth, and then you can determine the listing price from there.
The most important thing to remember is that your price should be competitive, but also reasonable. A listing that is far below market value looks fishy and most buyers may question its validity because it can be “too good to be true”. At the same time, price it too high and most buyers will think you are unreasonable and will not even make an offer. There is a definite goldilocks-happy-medium that will help your business sell quickly and profitably.
When in doubt, ask for help. Transworld Business Advisors are not only well-versed in all things regarding your business’s sales, but they also have tangible experience from numerous transactions. Their main goal, much like yours, is to sell your business at the best value for all parties involved.