Determine the Value of Your Business

• Step 1
The Sale price should always have some room for negotiation. However, if the price is set too high, a drastic reduction from the asking price is ultimately required. This will create uncertainty in the mind of the Buyer and the Buyer may wonder if he/she is paying too much.

• Step 2
Evaluation relies solely on the financial information provided by the Seller. Therefore, accurately reporting the income, expenses and details of the business finances plays an integral part in the evaluation process.

• Step 3
"Think like the Buyer!" If you were planning to invest your life savings, you would examine the business in every conceivable way. If you did not know how, you would consult with advisors. A business will ultimately sell for its true value. The worth can be enhanced to some degree depending on how the business is presented and how the sale is structured. This is where a professional broker makes a major difference with his/her expertise. However, the broker still requires the full cooperation of the Seller to ensure a successful transaction. Finally, after a thorough evaluation, the Market will determine the final value.

• Step 4
"Net Income" or earnings before interest, taxes, depreciation and amortization (EBITDA) is one of the determining factors in establishing the value of a business. The net income of a business is the total benefit of owning said business, which includes the Owner's salary, perks, write off benefits, and other cash draws. If spouse, family members or partners work at the business, then a reasonable salary should be taken into consideration for their efforts. Buyers need to know the projected cash flow.

• Step 5
Assume a business is selling for two or three times the annual net income. What this means is that the Buyer will pay the Seller all of the next 2 to 3 years income for the business in advance. This would include his/her own salary and all of the benefits. Buyers must assume the risk that he/she will be capable of running the business as efficiently as the Seller, an individual with more experience. The Buyer must also take into account the risks that are associated with owning a business. This requires a serious commitment on his/her part. The Buyer must feel that he/she will be successful or the sale will not be achieved.

• Step 6
Finally, most Sellers wait too long to sell his/her business. By the time the Seller is ready he/she is generally tired and the business is descending. Some Sellers, realizing the need to sell when the profit has declined, choose to hold on and try to improve the business before offering it for sale. The majority of the time this maneuver will only delay the sale and, realistically, the business is not apt to improve.

• Step 7
The time will come for every business owner to sell his/her business. Postponing a sale can be destructive and the Seller looses priceless time with family or at leisure while the value of the business is exposed to decline.