How much should a company sell for?

Typically, the sales range for small businesses is between two and three times the profit. Outliers can be multiples of once or less or four times or more. On rare occasions, I have seen well-managed companies in a growing market make profits up to seven times higher. It's time to think a little bit about how much your business is worth.

A few quick exercises can give you a good estimate, allowing you to correctly set a selling price. This approach works best for newer companies with high growth potential, but are not yet profitable. Given the economic uncertainty and rigidities in small business acquisitions, “programming the market for a modest increase in multiples seems like an uncertain bet with significant consequences. This is consistent with most listings on BizBuySell, a small business brokerage site with thousands of businesses available for sale.

This means intellectual property, your production line, your delivery truck, if it's part of your business, you'll have to account for it as an asset or a liability. I checked bizbuysell and other business listing sites and most companies showing profits seem to be earning at most triple the net. However, knowing the value of your company before organizing a meeting can allow you to get a better deal, that's where the valuation calculation comes into play. Your SDE represents the true monetary value of your company, but your SDE values your business according to industry standards.

Entrepreneurs looking to buy an existing business should also be familiar with valuations and feel comfortable estimating value regardless of the selling price of the business owner or broker. A fair way to value your business is to take your net income (after deducting a fair salary for you if you work in the business), add back any personal expenses that the business collects for you, and multiply them by a standard multiplier. In addition, it is essential to demonstrate to potential buyers how your business will continue to grow and generate profits. It seems that their business is declining and yours is growing, so I wouldn't rush to give them 40% of everything.

By its very nature, a small business is very risky compared to many other opportunities for an investor.