The BizBuySell Small Business Community

  • Get Expert Advice

  •  • Find Local Service Professionals

  •  • Share Your Experiences

How do you determine price of business on cash flow?

How is the calculation made? Gross, net, somewhere inbetween? With an internet company, does Google ranking count for anything?

No User Photo

Answer This Question

max 5000 characters

Web Reference (optional)

e.g., ""

Review Community Guidelines

Help keep our Community clean and on topic. The BizBuySell Community is a place where you can discuss your questions, concerns and knowledge with others you can trust. It is not OK to use this forum to solicit others for personal or financial gain, illegal activities, or to rant about personal issues. Please review the full guidelines if you have any questions.

Submit Your Answer
Answers (3)
Steven St
World Business Partners, Inc
Los Angeles County, CA


Using a multiple is a good gauge to check against other similar businesses and comparables But when it gets down to brass tacks it means nothing.

There are several factors that go into valuing a business that has very little to do with a multiple of anything. Basically, you can't determine the price of a business from cash flow alone unless you have money to burn.

You can use it to compare the one you're looking at to other businesses (and even that is kind of useless except if the seller is way off base on their asking price) but that's pretty much it.

Plus everything they said below me was good too.

Hope this helps.

Apr 25, 2009
No User Photo
The BAF Group LLC

I would add to David's excellent comments that contracts will also weigh in on the multiples. The more your Company's Revenue is tied in by such contracts, rather than Retail businesses for example, that may only be generated by promotion and goodwill, the stronger the case is for a larger multiple. The key to both his answer and mine is that utilizing multiples is not simply a quick-answer issue. There are tangible as well as intangible issues that go along with making such a decision. Moreover, in my own experience, multiples are terrific for "rule of thumb" estimates, but they Price generated through that mechanism needs to be cross-checked with Pro Forma P&Ls with estimated Debt Service, to determine whether the multiples work out from a practical perspective. Sometimes they don't. It is great to price a business for a billion dollars, but if the bank won't touch it, or the Debt Serivce puts the Buyer in the hole, it is a wasted exercise.

Apr 14, 2009
No User Photo
Franchise Advisory Group

Linda, the way to determine the price based on cash flow is to multiply the cash flow by a multiplier. For example let's say the multiplier is 2 for your type of business and your cash flow is $100K, that would make the price $200K. This is a quick example. Google ranking probably doesn't count for much, because you could have a high ranking and not sell anything or vice versa. Price a any business is determined by the business performance, profitability and assets.

Apr 14, 2009