Selling A Business- Valuation

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:-

  1. The position of the vendor in its chosen marketplace.
  2. The type of business being conducted with some industries achieving a higher multiple than others.
  3. What is happening in that particular marketplace i.e. is there consolidation or a particular appetite for acquisitions in the chosen marketplace.
  4. What is happening in the current economic climate.
  5. 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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