Pricing Worksheet

Use this interactive worksheet to help estimate the price of the business to be acquired or sold. Fill in the sections below and then click on the "calculate" button to compute various pricing "Rules of Thumb."
Overview of Business Pricing Method
The method used for our pricing calculations is a very basic model that is most appropriate for small privately held businesses. It is not a valuation method, but a simple way of calculating an approximate price for a small business. It is a good starting point in which to begin negotiations. It is based on calculating the earning power of the business to arrive at the goodwill factor of the business. This is then added to the fixed assets, the inventory and the furniture, fixtures and equipment (FF&E). This total is the basic price of the business. Remember, a seller may ask for more than this basic rule of thumb price, and the buyer may want to pay less.
Section 1: Adjusted Income and Expense Worksheet
Income (latest 12 months)
Sales
Other Income
Adjustments to Income If there are any subtractions from the stated income such as a one-time income item, enter both a note describing the adjustment(s) as well as the dollar amount to be subtracted.

Cost of Goods Sold
Expenses (latest 12 months)
Owner's Salary
Other Payroll
Outside Labor
Payroll Taxes
Employee Benefits (including medical and life insurance)
Utilities
Telephone
Insurance (business only)
Rent
Travel and entertainment
Auto
Auto expenses (gas, insurance, etc)
Legal and Accounting
Depreciation
Interest
Advertising
Dues and subscriptions
Bad debt expense
Supplies
Miscellaneous expenses
Adjustments to Expenses Most methods used to arrive at a fair selling price are based on a reconstruction of the business's profit and loss statement. This process goes by several different names- normalizing the statements or adding back to the statements. What these adjustments do show is the true earning power or cash flow of the business. By adding all of the non-essential items not necessary to operate the business and the non-cash items plus the net profit, a more realistic cash flow for the business can be depicted. If the business shows a loss, then the cash flow is the add-backs less the loss. Items to consider are:
Owner's salary
Travel and entertainment
Contributions to retirement and/or medical insurance programs
Auto
Auto expense (gas, insurance, et)
Depreciation
Interest Expense
Any other non-applicable expenses (note below)

Section 2: Assets Worksheet
1.) Inventory The inventory is priced at seller's cost and included in the price you will calculate. This means that the seller must provide an estimate of the inventory for pricing purposes. It also means that that the full price will fluctuate as the inventory increases or decreases. It should be noted whether the suggested selling price includes the inventory and, if so, how much. The actual value of the inventory will be determined at the time of closing. If the inventory is of significant value it is recommended that an inventory service be used (consult your local yellow pages).
Inventory at Cost
2.) Furniture, Fixtures and Equipment (FF&E) The value of the FF&E is also included in the price you will calculate. It is assumed that the value of the FF&E is the actual replacement value. If you need a rough "rule of thumb" for calculating the replacement value of the FF&E, take the FF&E depreciated value and multiply it by 150%.
Approximate Replacement Value of FF&E
Section 3: Business Comparables
Use the multipliers developed in the for-sale or sold comps section of the pricing Report, or use multipliers from your own analysis. These multipliers will then be used with the gross income and estimated cash flow from Section 1 above to develop two estimated asking prices.
Gross Revenue Multiplier
Cash Flow Multiplier

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