How Do I Price My Small Business To Sell?

This can be a tough question to answer and one Google search will give you several different answers. Another way this question is often asked, is “how much is my small business worth?” Today we will go through three of the typical valuation methods for pricing a business. Hopefully, this helps you answer, “How do I price my small business to sell?” If you still have questions, we would love to help! Give us a call any time and we are happy to discuss!

How Do I Price My Small Business To Sell? No. 1 – Business Assets

For most small business owners, this is likely just a starting point. Valuing your assets and subtracting any liabilities will tell you the foundation of your worth. If this is a service-based business, this may not be much. In that case, there is likely a better or a more complex method for you. If you have a business type with a lot of professional or complex equipment, this may be the bulk of your value.

No. 2 – Earnings and Revenue

This is the method I hear about the most. And oftentimes, it makes the most sense. Any certain industry may lean toward a multiplier, such as 2x, 3x or even 4x annual sales or revenue. The multiplier depends on not only industry type, but the location, assets, structure, etc. There is no hard and fast rule, but doing a little research in this area could help you to determine the value.

No. 3 – Market Value Comparisons

This one can be tricky, because at any point in time it may be hard to find similar businesses that have sold in your area. If you live in a larger area where businesses are often bought, sold, and transferred, this may be the most accurate method. This method works much like a comparative market analysis in real estate. You will take into consideration the type, age, earnings, and location of your business and compare it to that of other businesses that have sold.

At the end of the day, you also have to take into consideration that something is worth what someone will pay for it. You can price your business any which way, but if you don’t have a buyer, you may need to reconsider your valuation and goals.