There is plenty of room for judgment, but by and large, a profitable, reasonably healthy, small business will sell in the 2.0 to 6.0 times EBIT range, with most of those in the 2.5 to 4.5 range.
So, if annual cash flow is $200,000, the selling price will likely be between $500,000 and $900,000.
What should I sell my business for?
Make selling your business easy with these eight steps.
- Determine what your business is worth. A business is generally worth a multiple of its profit.
- Prepare your financials with your accountant.
- Field offers from potential buyers.
- Let the buyer perform due diligence.
- Close the deal.
- 3 Best Brokers To Sell Your Business.
How do you value a business?
- Calculate the Value of the Assets. Add the replacement costs of the assets.
- Establish the Company’s Revenue Stream. Establish the company’s revenue stream.
- Analyze the Company’s Earnings. Analyze the company’s earnings.
- Calculate the Net Present Value. Calculate the business’ net present value.
- Assess Non-Financial Factors.
What is the rule of thumb for valuing a business?
Use price multiples to estimate the value of the business.
Another valuation rule of thumb is using price multiples, which base the value of the business on a multiple of its potential earnings. For example, nationally the average business sells for around 0.6 times its annual revenue.
How are you taxed when you sell a business?
You will be taxed on the profit you make from selling the business. Profit received from the sale of the business assets will most likely be taxed at capital gains rates, whereas amount you receive under a consulting agreement will be ordinary income.