But many other factors come into play. For example, a buyer can pay three or four times the profits if a company has market leadership and strong management. The time revenue method is a valuation method used to determine the maximum value of a company. The time revenue method uses a multiple of current revenues to determine the ceiling (or maximum value) of a particular company.
Depending on the industry and the local business and economic environment, the multiple can be one to two times the real income. However, in some industries, the multiple may be less than one. For foodservice companies, for example, that number is usually two, which means that you would double the profits made by your company to get your valuation. That said, I have grown the business 50% year over year for the past 4 years, generating gross annual revenues of 60,000 and growing.
Therefore, the best way to do this is to get the average profit made by your company over a reasonable period of time, such as the last five years. Overestimating or underestimating the value of your company can make it difficult to get the right amount of funds or the right price when selling your business. I checked bizbuysell and other business listing sites and most companies showing profits seem to be earning at most triple the net. This is absolutely a function of the business you are in and, in my opinion, there are no general rules that are useful.
Therefore, to facilitate business decisions, there are a number of models that companies use to determine a range of value. Small business owners can determine the value of the business to assist in financial planning or preparing for the sale of the business. One of the common problems that online companies have with regard to growth potential is that their niche could be a passing fad. If the new owner is going to break his back while maintaining constant oversight of the business, then the price must be changed to reflect that.
To accurately determine the value of a company, it is essential that more than one method be used, not just one formula. Neal, we've been contacted by a couple of marketing companies interested in helping us sell the business, it might be a good time with my partner essentially ready to retire. Many people see the value of websites and online businesses as subjective, meaning that the market dictates their value.