If you are planning to sell your small business, you want to be certain that you are getting the best possible price. Unless you are skilled at calculating how much a business is worth, you are going to need a few things to ensure that you get the most from your sale. You should always keep accurate accounting records on hand, even if you are not planning to sell. This is good business sense and it is vital for you to be able to file your business taxes.
Those records can help you to determine how much your business is really worth so that you know a fair price to ask. Accounting records that can help you to valuate your business include income statements that show clearly your gross revenue and costs and how much your business had earned or lost in every year that it has been operating. You also need to be able to show cash flow statements that prove how much money your business received and paid out, as well as a balance sheet that will show potential buyers all of your tangible assets.
You may also want to be able to show discretionary earning statements that show how much your business earns after discretionary expenses. Once you have all of these documents in order, you can begin to estimate how much your business is worth.
Your business’ tangible assets include all of the physical assets that your company owns. This includes all equipment, furniture, inventory and fixtures. Business buyers pay strict attention to the tangible assets because they want to know what comes with your business and what those assets are worth.
Estimating your earnings will help you tremendously with regards to getting a fair price from your business. Most small businesses sell based on earnings multiplied by one to four. This means that you can estimat3e that your business will receive somewhere between one to four times the annual discretionary income of your business. The multiple that you estimate can look very attractive to potential buyers.
Simply put, buyers want to know that your business is making money because if you are making money then they can assume that they will make money as well once they take ownership. If you cannot show that your company has a good earning potential, it may perhaps be best to wait until you can before you proceed to sell.