How to Determine a Selling Price for a Business

Series Summary

Starting a business requires the utmost organization and planning. Beyond conceptualizing a business plan and getting the ball rolling, there are employees to compensate, books to keep and bills to pay. It is the small business owner's responsibility to monitor every detail that takes place in their business. It can be strenuous work to start a new business, but keeping organized and accurate is the foundation to a successful company. Then again, many businesses are built with one goal in mind: sell. Start-up businesses surrounding the Internet or filling niche markets often try attracting larger businesses’ attention to negotiate a big sell. In this free video series on selling a business, professional consultant Robert Nizza explains the best ways to sell a business. Nizza covers determining a price, advertising the sale, selling bulk assets, selling part of a business and selling a business online. He also offers tips for small business sales, including how to close a sale and transfer a business title.

Video Transcript

"Hi, my name is Robert Nizza. I'm with the BTR Group in San Francisco and I'm here to talk today about how to determine a selling price for your business. Now, valuing a business is an art. It's definitely not a science. There are a lot of books out there. There's a lot of people out there with different opinions and they all vary. What's the best way to determine a selling price? Probably one of the best things to do is to talk with someone that is in the business . I happen to be a business broker. The way that we determine selling prices is basically using comparable data. We will, we, my company has sold over 4,800 businesses, so we have lots of data on how to sell business. Typically, a business value is a multiple of the profit that, and I'm simplifying things, but it's a profit of, it's a multiple of the profit that the business generates. For example, a small business that's under perhaps five million in revenues, under ten million in revenues, that multiple is somewhere between two and four times that profit. And that profit is a special number. It's called the adjusted net income and it includes the salary of one full time owner, interest depreciation and any discretionary items that are run through the business such as health insurance and, let's see, your car insurance things like that. So the best way to determine a selling price is to go to an expert that is working with transactions and see what other businesses that might be similar to mine trading for in the last few years. What are the multiples for that business. And that's how you can determine the selling price for your business."