3 EZ Steps to Figure Out Your Business's Value

As a Business Broker, I'd hear this question all the time: "How would I know what my business is worth if I wanted to sell it?"  Many times, getting an idea of what this figure is, will help a seller decide if he/she wishes to move forward with exploring the process of selling their business....or not.

We have lots of analytical tools and formulas to get to a sales price before we list a business; but there's a pretty simple formula we do in our head to see if it's a listing we should consider taking in the first place:

1. Figure out what the annual sales are.
2. Figure what the owner(s) take home annually as a paycheck, PLUS an estimate of the personal things they write off.  This gives us a broad idea of that seller's discretionary earnings (SDE).
3. Multiply the SDE by 2.0 to 2.5.

That new number will give you an idea of a price range a potential buyer would be willing to pay for your small business.  Of course it's more involved once we sit down with the financials and decide on a final listing price; but knowing this figure will help you decide if you want to at least move forward with your options.