When it comes time to sell your business, you want to make sure you get the best possible value for it. To do this, it's important to understand the various factors that affect the sale price of a business. Revenue and profit multiples are two of the most important factors that determine the value of a business. Revenue multiples range from 0.4 to 1.1, with an average across all companies of 0.62. Profit multiples range from 1 to 9, with an average across all sectors of 2.41. To determine the value of your business, you or a professional business broker can research what price similar companies have been sold for as a multiple of their discretionary profits.
Multiply your discretionary profits by the multiple in your sector and you'll get a figure that will closely align with what the market will value your company at. It's also important to make sure your company looks its best before selling it. Companies with a large proportion of revenues from a limited number of customers are considered to have a high concentration of customers and obtain smaller EBITDA multiples, while companies where no customer represents a significant proportion of revenues have a low concentration of customers and obtain higher multiples. Goodwill is another factor that can affect the sale price of your business.
To maximize the value of your business when selling it, it's important to understand how to value goodwill and take steps to ensure that your company is in its best condition before selling it.
