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What would be a proper sale price ratio to cash flow for an established franchise sign company?

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The BAF Group LLC
MD

Julie is sooooooo correct. This, in part, is what I hate about the "quick and dirty" rules of thumb. Regardless of whether you use a rule of thumb or a cash flow ratio, you ALWAYS have to double-check the price you come up with by doing exactly what she says: Do a Debt Service estimate and back that out from your pro forma P&L or the Seller's historical Financials, to see where you would come out, as a Buyer.

Nov 6, 2009
Julie A. Barnes, CPA
Small Business Exchange, Inc.
Travis County, TX

Hello S Hackett,

You're going to hate this: It all depends. I believe the most commonsensical way to price a business is to put yourself in the buyer's shoes. Most likely, a buyer will be borrowing some, if not all of the funds. What you want to do is to work backwards. That is, if a buyer takes out an SBA loan, for example, how much cash flow can he/she expect after servicing that loan? Will that amount be sufficient for working capital and a decent salary?

I encourage to visit my website: http:// www.AustinBusinessesForSaleBlog.com for some other free advice on how to valuate a business. Please feel free to contact me or to post any questions on my blog.

Thanks!
Julie A. Barnes
President, SBX Inc.
512.577.8003

Nov 6, 2009

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