The question of how much a business can be sold for ultimately comes down to its valuation.
Business valuation is the process of determining the economic value of a company, which includes analyzing its financial statements, assets and potential risks.
There are several methods that can be used to calculate a business’s valuation, such as the asset-based approach or the income approach. It is important to note that the final sale price will also depend on market conditions and negotiations with potential buyers.
It is important to work with a professional, such as a certified business valuation expert or M&A firm such as Destined, to accurately determine your business’s worth before entering any sales negotiations. This will ensure you receive fair compensation for all of your hard work and efforts in building your business.
Like with most things business, it largely boils down to the math. However, there are a number of additional outlying considerations that can be taken into account. This article details ways to accurately and efficiently assign a value to your business, before selling.
How to calculate the value of a business to sell?
There are several methods for calculating the value of a business, including the asset approach, the market approach, and the income approach.
The asset approach
The asset approach takes into account the value of a company’s physical assets, such as equipment and inventory.
The market approach
The market approach considers similar businesses that have been sold recently in order to determine an appropriate valuation for the subject business.
The income approach
The income approach looks at projected future earnings to calculate the present value of a business.
It is important to consult with a professional when valuating a business for sale. They can help determine which method is most appropriate and provide an accurate assessment.
How much do businesses usually sell for?
The average business sale price can vary greatly depending on factors such as industry, size, location, and profitability. However, according to some industry reports the average small to medium sized business sells for approximately six times its annual profit or earnings before interest, taxes, depreciation, and amortization (EBITDA).
It is important to note that these figures are just averages and should not be used as the sole determining factor in valuating a specific business. Business owners and potential buyers should also take into account tangible assets and intangible factors such as brand reputation and customer loyalty.
Ultimately, it is up to the buyer and seller to negotiate a fair sale price.
How to get a valuation of your business
If you are looking to obtain a valuation of your business, there are a few options you can consider.
First, you could hire a business valuation firm. This option may be costly, but it can provide valuations for a wide variety of purposes beyond just selling your company, such as estate planning and 409A compliance.
Alternatively, for a market valuation you can turn to Destined. We have a strong track record of creating a foundation for market valuations with a history of providing estimates that are met or exceeded by business acquirers.
Ultimately, the route you take will depend on factors such as cost, and the level of accuracy needed for your purposes. Regardless of which method you choose, it is important to keep in mind that valuations are not set in stone and can vary depending on various factors.
As a final point, consulting with industry experts and financial professionals who have experience in valuing businesses can also provide valuable insight into your company’s worth – perhaps the most sage. And that’s where we come in – Destined is your sell-side partner, and we’re ready to tailor our expertise to your needs. Starting with the accurate assessment of your business’s value.
We hope you found this insight useful.
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