Trying to sell a business. Where do you start understanding the value and what to ask for?
Selling a business is a big move, and getting the valuation right is key to attracting serious buyers and walking away with what it’s truly worth. Here’s a breakdown of where to start and what to consider:
Step 1: Understand the Core Valuation Methods
1. Earnings Multiples
- Formula: Business Value = SDE × Industry Multiple
- SDE (Seller’s Discretionary Earnings) includes net profit + owner’s salary + perks + non-recurring expenses.
- Multiples typically range from **2x to 4x**, depending on industry, risk, and growth potential.
2. Asset-Based Valuation
- Adds up the value of tangible and intangible assets, minus liabilities.
- Best for asset-heavy businesses or those winding down.
3. Market-Based Valuation
- Compares your business to similar ones recently sold.
- Useful for gauging what buyers are actually paying in your sector.
4. Discounted Cash Flow (DCF)
- Projects future cash flows and discounts them to present value.
- Ideal for stable, mature businesses with predictable income.
Step 2: Key Factors That Influence Value from other party's perspectives
- Financial Performance: Consistent revenue and profit growth are gold.
- Owner Dependency: The less reliant the business is on you, the more valuable it is.
- Customer Base: A diverse, loyal client base reduces risk.
- Industry Trends: Hot sectors command higher multiples.
- Location & Lease Terms: Especially relevant for physical premises.
- Systems & Processes: Well-documented operations increase buyer confidence.
Step 3: Set a Realistic Asking Price
- Avoid pricing based on what you 'want'—buyers care about what it’s 'worth'.
- Consider what you’d pay for your own business if you were the buyer.
- Be prepared for negotiation: most buyers expect to haggle 10–20% off the asking price.
Step 4: Prepare for Sale
- Get your financials in order (3 years of clean books is ideal).
- Document systems, staff roles, and client contracts.
- Consider hiring a broker or accountant to help with valuation and marketing.
Your blood, sweat and tears have gone into your business over the years. You must remove the emotional side and the pride element. As with all things, the business is only worth what people are willing to pay.