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Business Pricing

Pricing a business is a complicated process that requires experience since different methods can apply depending on the case. There are many ways to determine the market value of your business, and it’s very important to understand the methods and variables involved before you decide to put it on the market, or even if you’re just interested in knowing how much is worth.

 

The most accepted business valuation method, and most objective, is the Multiples of Earnings Method. In this method the annual earnings (net profit, EBIT or EBITDA) are multiplied by an industry acceptable multiple to arrive at the business valuation. The multiple used in this method reflects the risk attached to future earnings.

 

Other less popular methods but still accepted are: 

 

  • Asset Value Approach
  • Sales of Comparable Businesses Method
  • The Industry Formula Approach (based on revenue)

 

Other factors to take into account when assessing your business include:

 


  • Growth trends
  • Industry trends
  • Website traffic
  • Repeat customers
  • Age of business
  • Online and offline sales network
  • Business model
  • Niche
  • Competitors
  • Management in place
  • Location
  • Lease options
  • Company goodwill
  • Business size
  • Patents

When considering how to value your business, you have to take in consideration most of these approaches and even though going through the calculation process for each method will tell you a lot about how well it fits your business, it is recommended to get an opinion from a business valuation expert.