3 EZ Steps to Figure Out Your Business’s Value

As a Business Broker, I’d hear this question all the time: “How would I know what my business is worth if I wanted to sell it?”  Many times, getting an idea of what this figure is, will help a seller decide if he/she wishes to move forward with exploring the process of selling their business….or not.

We have lots of analytical tools and formulas to get to a sales price before we list a business; but there’s a pretty simple formula we do in our head to see if it’s a listing we should consider taking in the first place:

  1. Figure out what the annual sales are.
  2. Figure what the owner(s) take home annually as a paycheck, PLUS an estimate of the personal things they write off.  This gives us a broad idea of that seller’s discretionary earnings (SDE).
  3. Multiply the SDE by 2.0 to 2.5.

That new number will give you an idea of a price range a potential buyer would be willing to pay for your small business.  Of course it’s more involved once we sit down with the financials and decide on a final listing price; but knowing this figure will help you decide if you want to at least move forward with your options.
This entry was posted in business brokering, entrepreneurship, marketing, patty rappa, small business. Bookmark the permalink.

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