Establishing the Probable Market Value of a Business

The first step in buying a business or selling a business is to identify its likely market value.

It’s sort of like researching the market to get good value when buying or selling a car. But valuation of a business is harder because each enterprise is unique. Still, there are factors that govern the probable market value of a business, and it is critical to analyze them before committing to a price (either a buying price or a selling price.)

For example, one must look at the historical cash flow that the business has been producing, after all expenses. “Expenses” in this case includes the fair market value of the work done by the owners.

Once you know the cash flow, also called Seller’s Discretionary Earnings, the next step is to look at various risk factors and use them to gauge the probable reaction that a typical buyer will have. This is the so-called “multiplier” and it tells us approximately how much the historical cash flow might be worth on the market of business sales.

That’s it. Simple? No, not by a long shot. Small differences in the multiplier can mean thousands of dollars of price movement up or down.

When it’s your “thousands of dollars” at stake, it would seem prudent to do this homework before setting a business for sale price or agreeing to one.

That’s where we come in. Why not give us a call to learn more about how this works? (503) 991-5601

Request a free business valuation consultation call

Learn how buyers think and how you can show your business value in its best light.

There are many approaches to valuing a business. Find out which one is best for selling your business or for buying a business.

This call will describe the most common method used for marketing a business for sale. This valuation method is not suitable for litigation or other courtroom use. It is called a “Broker’s Price Opinion” and it’s based on real-world experience in the business for sale marketplace.

Just fill out the request form and we’ll contact you to arrange a time to talk about your business selling or buying objectives. No charge, just plain talk about why we say, “Value is a verb.” It’s what people do, based on cash flow, assets, risk analysis, and many market factors. Some are under your control, and some aren’t. You will learn which ones can be changed for the better to increase your business value.

Gary Richards has been valuing businesses for over 20 years, and he can show you how businesses are valued, whether you’re selling or buying.

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Our Principal Broker

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Gary Richards

Licensed principal real estate broker in the State of Oregon