Before selling a business you need to understand what it is worth on the market. If you are thinking about selling your company, you should look at the Buying a Business Page so you understand what the buyer is looking for in a valuation. You may need several different types of valuations depending on the buyer, nature of the business, who will be providing financing, and the structure of the deal. Having clear books and records along with a valuation that has been prepared by a qualified business broker with the help of a CPA helps a buyer with due diligence, and you want to have several years of financial statements.
If the business is profitable, you will likely be able to sell it using the business as collateral. In some cases, companies are sold to key employees since these people know and understand the business. Your bank may be interested in providing financing to the new owner. The SBA provides loans for profitable companies; and seller financing is another great option that provides the best of both worlds for a seller – cash and ongoing revenue.
So how much is your company worth? There is plenty of room for judgment, but by and large, a profitable, reasonably healthy, small business will sell in the 2.0 to 6.0 times EBIT (earnings before interest and taxes) with most of those in the 2.5 to 4.5 range. So, if annual cash flow is $200,000, the selling price will likely be between $500,000 and $900,000. BUT it isn’t that simple!
Get a formal valuation. Potential buyers aren’t likely to take your word for it when you say what your company is worth – hire a business broker.