What Your Business Will Sell For

What the business is likely to sell for is a question that every business owner wants to know the answer to before they put their business on the market.  How does a business owner decide what the business should sell for?  The most widely used benchmark is the “financial” value.  Appraisers use three approaches to calculate the financial value of a business:

The asset approach – This method consists of determining the total value of the company assets if disposed of in an orderly liquidation.  This value is usually arrived at by an equipment appraiser.  Business appraisers will use the asset value arrived at by the equipment appraiser when doing their business valuation.  In the valuation of most profitable businesses, the asset value is much lower than the value arrived at by the next two approaches and not used to calculate the valuation.

The market approach – This approach uses sales information from databases of actual business sales and business valuationdata from your company to estimate the selling price of you business.  Typically, the revenue and seller’s discretionary earnings of the business are multiplied by the sale multiples from the database.  Note that “seller’s discretionary earnings” are the total income and benefits that the business generates to one, working, owner.  We offer a business valuation to prospective clients using the market approach.

The income approach – This approach looks at the income the business produces and calculates the present value of the future income stream.  The income is the EBITDA of the business which is the seller’s discretionary earnings less the amount paid to a manager.

We can provide a financial valuation prepared by an accredited, independent, business appraiser for a modest fee.  If we subsequently sell the business, we will deduct the cost of the appraisal from the commission.  As noted above, we also offer a business valuation using the market approach.  There is modest charge for this business valuation for prospective customers and it is deducted from the commission when the business is sold.

A business can sell for more than its financial value because of its strategic value.  This is the value, to a specific buyer, of assets or capabilities of the selling business.  The strategic value is based on the greater profits the buyer can realize on these than the business being sold.  This is because of capabilities that the buyer has.  Because of this, the strategic value varies, depending on the particular buyer.  Contact us to discuss whether your business has strategic value and how to get paid for it.

"The sale of our educational software business through BayState Business Brokers was very smooth and very professionally handled. The entire process only took about 2 months from start to finish, and from week 1 we were talking with a large number of highly qualified prospective buyers. Our sales agent, Marc Gudema, was very helpful throughout and also provided us with lots of good advice and insights at the closing stage. We would definitely seek the help of BayState again in the future for both a sale or an acquisition of a business."

Steve Cox, Former Owner, Aegom Interactive

BayState Business Brokers, 60 Kendrick Street, Suite 206, Needham, MA 02494

T: 617-562-5700, F: 617-562-5701