How much can I sell my business for? That is dependent on several factors. Each of these factors are described briefly below:
- What Kind of Business Is My Company In?
Product companies often sell for higher multiples than service companies. Companies with recurring revenue streams sell for more than companies without recurring revenue. Industries with higher growth potential will get a higher multiple than low growth industries. Although gathering data on privately held industries is more difficult to secure, there are publications that provide general guidelines as to what has been the range of multiples for comparable sales for a given industry in the past.
- How Much Profit Is My Business Currently Making?
One of methods used to value a business is to multiply the historic adjusted earnings of a company times a multiple that is based on the buyer’s required rate of return and the company’s growth potential. This method is appropriate when the company’s past performance is a good reflection of its long-term potential.
- How Much Profit My Business Can Make in The Future?
If the future outlook is much better than in the past, then the best way to determine the company’s current value is to use a Discounted Cash Flow method of valuation. This is based on forecasts of future performance. But be aware that this method often comes with high discounts taken by the buyer because of future risks and unknowns.
- Is There a Strategic Reason for Someone Buying My Business?
The highest price for which you can sell your business will likely come from a buyer that gains a strategic or financial advantage from buying your company beyond just the cash flow that it will generate from your current business. A competitor may pay more for your company if this reduces competition in the industry. You may have products or services that your buyer can sell in other channels or geographies. You may have technology that can be used by the buyer. These are just a few examples of strategic reasons for a buyer to purchase your company.
- How Much Risk Is There to the Buyer?
Simple math. The higher the risks in purchasing your company, the lower the multiple that will be paid. Example of risks include the company being too dependent on the owner, having an unproven management team or products, or impending threats from a competitor.
- What is the Structure of the Sales Agreement?
If the structure of the transaction is all cash, then a buyer will typically pay less for the business. If they can stretch out the payments or they require an “earn-out” based on future success, then the sales price can be higher.
- How Much Time Do I Have to Sell?
Generally speaking, the longer you can wait, the more likely you are to find a buyer who will pay more.
- What Are the General Economic Conditions that Impact the Sales Price?
Interest rates, the availability of money from investors, and a variety of general economic conditions impact the multiple that people will pay.