Small business ownership can be a roller coaster. Here’s how to value your business in order to attract a buyer if your business has seen better days.
If the business’s sales are declining year after year, a buyer will not base an offer on last year’s (better) results. A seller needs to get ahead of the trend in order to get the business sold.
That said, here are three simple ways to value this type of business for sale.
1 – Calculate today’s value as if the business in a steady state, then apply a significant discount (25-35%).
2 – Look forward a year and base the asking price on a conservative pro forma for next year with a standard multiple of free cash flows. Be prepared to defend your assumptions.
3 – Add the fair market values of furniture, fixtures, equipment and inventory (at wholesale cost) to arrive at the total value of the hard assets. If this number is more than #1 or #2 above, you should liquidate the assets instead of Buy Sell Businesses.
If sales and profitability is declining you should price your business aggressively. You have to get out in front and not just follow the market down. Taking a little less today will actually save you money as compared to what you’d get down the road as the trend continues. Be a realist, price the business to sell and move on to your next venture.
Florida Business Brokers Association 