Only a small percentage of businesses on the market actually sell.Whether you are in the market to buy a business or want to sell it, you need to ensure a fair price for yourself by following these steps.
Step 1: Information about the business should be gathered.
The law of supply and demand can be used to inform the base valuation of the property.Look around.The sale price of other businesses in the area should be noted.This will give you an idea of what a business like that is worth.You're likely to find a wide range of prices.To get an initial assessment, place the business you're evaluating somewhere along that range.Business owners are free to give an estimate of the value of their business.Many won't have a number ready offhand.Look at assets.Knowing what assets the business has is more important than knowing the asking price.The method looks at the cash value of the business if all of its hard assets were to be sold off.It's important to get a good idea of how much each hard asset will sell for, but also how likely it is to sell quickly.The method assumes that the business will remain in operation after it is sold and that future income will be based on past performance.It's helpful to have detailed financial records.You should account for operating costs and other expenses when evaluating a business's assets.
Step 2: The cash flow of the business should be estimated.
If you know the shape and size of the business you're investigating, you can get a better idea of how money flows through it.The seller's discretionary cash flow model is the most common formula used to measure a business' earnings.Make sure the model works for you.Most small businesses and some franchise operations are run by an owner.In the case of a larger business without an owner-operator, valuation becomes more complicated.Apply.It's a fairly simple formula.Before taxes, begin with business earnings.Add any expenses that are unrelated to operating costs and subtract any income that doesn't result from the operations of the business.Employee benefits and personal expenses are typically included.Add atypical and one-time-only expenses.Add any expenses related to depreciation.Add interest payments and expenses to subtract income.Add the compensation of the owner.Pick one if there are multiple owners.The standard for the market should be adjusted to the compensation of any other owners.This will give you an estimate of how much money a business is making.The price should be estimated.If you want to arrive at a market price, you'll need an accountant on hand to help you figure out what market multiple to use.If you have to, you can try to guess the relative market multiple of businesses that have sold and sold at different prices.
Step 3: Double check everything.
You should account for as much of the business as you can.Have you accounted for every asset and every dollar that leaves the company, including those that might not be on the financial record?Have you accounted for loan costs?Think in a methodical way.If the answer is yes, make sure you have a figure for it and list expenses and incomes by type.Don't think about the money.The location, age, and general reputation of the business are considered soft factors.The cash flow value can be altered by these.
Step 4: You should review your research.
You can compare the market range for similar businesses to their income and asset figures.If you want your asset figure to match the assets of businesses in the range, you have to make sure that your income figure is constant.
Step 5: The terms of sale should be taken into account.
Whether you're a buyer or seller, the details of how the business is being sold will affect the figures you come up with.The amount of money that can reasonably be expected to change hands during a business sale can be raised or lowered by a variety of things.There is a difference between cash and credit.One willing to work with financing will command a higher final figure than a seller who wants a cash sale.A buyer who offers cash is more likely to negotiate a lower price.Buyers should be aware of how they balance their monthly payments with the down payment.A buyer can make his or her monthly payments smaller by placing a larger amount of money down at the beginning of a financing deal.