Having spent time getting the business ready for sale the business owner will wish to extract as much value from the business as possible. There are many ways of valuing a business with some valuations based on a multiple of recurring income or possibly on gross profit generation but most use a calculation based on recurring net profits.
Often a calculation is made of the recurring net profits of the business say over a three year period and a multiple is placed to this average of say between three and ten times the average profit depending on a number of factors such as:-
- The position of the vendor in its chosen marketplace.
- The type of business being conducted with some industries achieving a higher multiple than others.
- What is happening in that particular marketplace i.e. is there consolidation or a particular appetite for acquisitions in the chosen marketplace.
- What is happening in the current economic climate.
- The appetite of the purchaser to buy that particular business. It is possible the purchaser might be trying to grow his own business fairly quickly or expand in a different marketplace and may be inclined to pay a premium to achieve his aim.
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