How Do You Value A Business For Sale?
• Approach the business from the market’s perspective. Observe the law of supply and demand to begin your evaluation of the business under scrutiny. • Start with a rough “rule of thumb” estimate by noting the sale price of any other like businesses in the area. While no two companies will be identical, the sales ranges of businesses of similar size, business model, industry and market area served provide a price floor and ceiling to start. • Assess assets using one of two methods: liquidation value (the value of the hard assets under a fire sale scenario) or income capitalization (projecting future income based on past track record). Bear in mind, a small “asset light” company with a large, loyal customer base may be more valuable to you than a large “asset heavy” manufacturer that would be hard to break up and sell off. • Follow the money. Find out how and how much income is coming in, and what counts as income beyond register receipts. • Tally the total income with an “owner benefits
