Buying a Business

What Is The Value Of My Business?

There is a bad rumor that a business is worth 3x its annual net cash flow. There is no set standard for the value of a business as there are many factors to consider. Each industry buys and sells differently, and the net cash flow is the greatest determination. Important factors to consider is private branding, location of business, age and condition of equipment, and reputation.

Many businesses sell at a multiplier… the greater the cash flow, the higher the multiplier. If a business is making $50,000 per year, for example, a buyer is buying a job. How much are they willing to pay to earn $50,000 per year? On the flip side, if a business is producing $500,000 profit, it could sell for 3x or 4x cash flow or greater. We analyze closed sales of similar businesses to analyze the relationship between net cash flow and price, and we analyze Active Listings to see what our competition is.