2 times the yearly verifiable net income to the sales price! Meaning if the business' verifiable net income is $50K, expect to pay around $100K. Businesses are currently being sold for higher amounts but ...WHY GET INTO THAT-DONT BE FOOLED BY THAT! There are businesses that are being sold using that ratio so that is doable and fair! KEEP LOOKING FOR A BUSINESS THAT WORKS FOR YOU! You'll FIND something USING THAT RATIO IF YOU LOOK! For SOLID BUSINESS PURCHASE ANALYSIS based solely on IN THIS CURRENT MARKET - Contact: RealEstateSpecialties@ymail.com if you have any questions about this!

Hello S Hackett,

Don's advice is absolutely spot on. Small to medium sized enterprises (SME's) are especially difficult to price. Ratios may give you a ball park figure but, as Don mentioned, you also need to pay close attention to trending. Are net profits and cash flows increasing/decreasing?

I don't know if you're a buyer or seller but a key question is "Why is the owner selling?" If the answer is retirement or transferring, for example, you might place a bit more confidence in the future of the company. If, in fact, the business is trending downward in terms of financials, that's a huge consideration - you must then decide if the buyer is capable of reversing that trend.

It's a bit ironic that - in my opinion - SME's are more difficult to price than large companies - who have audited reports and a higher likelihood of using comparatives in the industry. Exact formulae for valuating an SME should NEVER be used except as a directional tool.

Please visit my blog: http://www.AustinBusinessesForSaleBlog.com for free advice on how to reach a sales price for an SME. Feel free to post any questions you might have.

Good Luck!
Julie A. Barnes, CPA
President, SBX Inc.
Web reference: www.SmallBusinessExchange.net

Web reference: www.SmallBusinessExchange.net

Hello S Hackett,

Don's advice is absolutely spot on. Small to medium sized enterprises (SME's) are especially difficult to price. Ratios may give you a ball park figure but, as Don mentioned, you also need to pay close attention to trending. Are net profits and cash flows increasing/decreasing?

I don't know if you're a buyer or seller but a key question is "Why is the owner selling?" If the answer is retirement or transferring, for example, you might place a bit more confidence in the future of the company. If, in fact, the business is trending downward in terms of financials, that's a huge consideration - you must then decide if the buyer is capable of reversing that trend.

It's a bit ironic that - in my opinion - SME's are more difficult to price than large companies - who have audited reports and a higher likelihood of using comparatives in the industry. Exact formulae for valuating an SME should NEVER be used except as a directional tool.

Please visit my blog: http://www.AustinBusinessesForSaleBlog.com for free advice on how to reach a sales price for an SME. Feel free to post any questions you might have.

Good Luck!
Julie A. Barnes, CPA
President, SBX Inc.

Web reference: www.SmallBusinessExchange.net

There is no way for a responsible person to answer a question that is that vague, in my opinion. Pricing a business is not like flipping a coin. Not only can ratios can be extremely misleading, but looking at the history of the business, seeing the growth (or erosion) of the Cash Flow history, determining the kind of sales history that is present - all of that goes into exactly which ratio to use to begin with. Then, it may be okay to use a ratio for a rough estimate, but looking at Cash Flow in more detail is something that should always be done, in order to verify and refine the rough estimate.

Web reference: www.bafgroup.com