How are businesses priced?
Before I list any business, I perform a Brokers Opinion of Value (BOV). The first thing a seller wants to know is “What’s my business worth?” The BOV that Murphy Business provides values the business using three commonly used methods in the broker and financial industry. The value is calculated by combining all three methods using a weighted index. Reputable business brokers will have access to “comps” (like kind businesses that have recently sold), industry statistics and standard pricing multiples.
Many times sellers have an over inflated idea of their business’s value. One of the most difficult jobs a business broker encounters is convincing a seller of the true value of the business. A business broker is familiar with market and values a business based on the view of banks and buyers. By reviewing the financial records of the business, brokers with the proper tools can make a business value recommendation. As a general rule there are two key indicators that dictate the price of a business
1) Cash Flow
3) Depending on the size of the business you want to buy, a certified business valuation will be completed for the business.
In today’s market, most business transactions have some type of seller-finance. Many times SBA and commercial lending institutions will not make the loan to buy a business unless the seller finances a portion of the deal. The down payment and terms of the sale are very important. In many cases, how the sale of the business is structured is more important than the actual selling price. Don’t make the mistake of being overly-concerned about the price of the business when the terms of the sale can make the difference between success and failure.