Much of what has already been written about valuation multiples states that most businesses are sold with a multiple that ranges from 1-5.
But in truth, smaller businesses that sell for 4 or 5 time their earnings are rare-at least when it is a question of owner-managed businesses.
I really didn't know...
So I suggest you begin with a multiple of 2.0 and use the listing of factors below to adjust the multiple up and down according to your specific situation and you company's performance.
This is just a partial list to get you started, there are required to be unique factors that affect your business that aren't listed here.
A significant amount of sales come from repeat customers. Even better is revenue that comes from automatically recurring charges. Web hosting, alarm monitoring and self storage are some examples of the business that may have reliable repeat revenue each month.
At some point in owning a business, you may admit that you just suddenly want to sell your business for X amount. You may have arrived at this estimated price by using a set of valuation methods. These include analyzing the sale price of related businesses for sale in your location and other parts, determining the corporate assets' value, and factoring potential growth of revenue. Whether or not the buyer agrees to your asking price also relies on a series of factors. However, the most significant of all is business financing. Not all aspiring entrepreneurs have adequate cash on hand to purchase a small business. Most of them have funds for the down payment and they plan to be paid for the balance via loan transactions. Credit unions and banks are the ones to look to for business loans, but due to current state of the economy, business and consumer credit markets have become strict and tight on providing loans. With this, aspiring business owners turn to business seller financing, where the owner of the company for sale acts as the lender.
The business relies heavily on location for its success but the lease isn't transferable or is about to expire. If this applies to your business, try to obtain an extension on your lease before you begin to sell.
Buyers, however, tend to zero in on the negatives-or what they perceive to be negative. They are loath to risk and so they'll always be on the lookout for problems.
If any of the negative factors listed above exist in your company you're not alone. Almost every business has some problems and they shouldn't prevent you from successfully selling.
You can lower your price accordingly and show the buyer how and that's why you have discounted your price by lowering the multiple, you can ignore the questions and wait for the buyer to point them out, and you can fix the things that are fixable.