How Much Is Your Business Really Worth?

 

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When you look to sell your business, what is your business worth? There is only one answer to that: Whatever the market decides. I know that’s not the answer you were looking for, but there are a lot of factors that go into what a business is worth.

I will give you the “x” factor that can help bring you more money for your business (discussed later in this article).

However….

In short, someone will want to buy your business to “buy a job”. Basically, that’s what they’re doing. They are paying you for a salary. While there are many factors to valuating a business (and I can refer you to certified valuation experts if need be), the rule of thumb is based on two figures.

  1. What is the total gross revenue of your business?
  2. What is the “owner’s benefit” for running the business?

The “owner’s benefit” is more than just the owner’s salary, but what types of expenses does the owner expense back to the business, i.e. car lease, cell phone, etc.? Let’s call is salary for the sake of simplicity, but it includes the benefits of the business.

In general, the higher the gross revenue and higher the owner’s salary, the more multiples you can get for your business.

A company making less than $300k, with, let’s say $100k salary can expect a 1-1.5 multiple. So figure you can sell the business for roughly $100k-$150k.

“Why so low? I have put twenty years of work into my optical shop, doesn’t that count for anything?”

And the short answer is…wait for it….no.

It’s one thing if you’ve actually built a brand, but if you are the brand then the “Brand” will be saying goodbye and the new owner will have to start building their own brand. ¬†Also, the less money a business makes, the higher the chances that it can go belly up if the economy turns sour. So businesses will low revenue typically get lower prices.

$300k-$500k – Expect a 2-3x multiple of salary. That’s getting more reasonable.

$500k+ Expect 3x+ multiple.

And so forth.

Valuating a business is not a black and white science. Even certified business valuation experts, with decades of experience can valuate the same business differently.

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