Home – New Forums Money matters How do you value a business when selling it? Reply To: How do you value a business when selling it?

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There have been some good comments and advice already but I thought I’d offer mine too.
There are several ways of valuing a business, each needing quite specific information. For a business of the size you are talking about it is worth engaging a valuations expert.
As a few people have mentioned, privately owned businesses are usually valued at a multiple of earnings (EBIT). The multiple applied will depend on several factors, including

  1. Your industry
  2. The current market conditions and your competitors
  3. The risk in your business
  4. Future potential and earnings
  5. Your corporate governance processes and systems
  6. The extent to which the business owner is involved in the business
  7. The strength of your management team
  8. The extent to which your future income is locked in (e.g customer contracts)

Smaller businesses generally attract lower multiples, some as low as 1, but larger businesses are generally perceived to be less risky, as they will have a stronger management team, less reliance on individual customers and have a greater level of governance. The business you refer to is not a micro business, and may attract a higher multiple, but it’s impossible to tell without more info.

Another major factor is whether there is a potential buyer, and what they are prepared to pay. A ‘strategic’ buyer might pay more than the market value of the business if it is of greater benefit to them. Or, a listed company may pay more for a business because once purchased it will benefit from the company’s higher multiples (this is arbitrage).

A bit like selling your house, putting in some work to prepare a business for sale will reap rewards in finding interested buyers and negotiating a good price.

I hope that helps – good luck!