I work with extremely successful and exceptionally bright professionals who, after years of hard work, have grown a business that has going concern. But selling a business is a lot of work. And certainly selling a professional service business must be harder or so many of my clients think. Then the question remains: is it worth it? The short answer: absolutely. Sure, there are countless moving parts and factors to consider when selling a business.
What are some 'rules of thumb' for valuing businesses?
Some will say the value of a business is:. From my experience a valuation does not have a silver bullet because, by definition, each business is different. Our view, as professional business valuers, is that while there are guidelines around what a small business might be worth compared to a large business, or what a large business in, for example, the pharmacy sector might be worth compared to a large business in the manufacturing sector etc, every business is different. Rule of thumb: Small businesses are worth between 2.
Rules of thumb can be useful to determine if a proposed business transaction seems reasonable prior to accepting an SBA loan application. However, most businesses are unique, and applying a rule of thumb without additional analysis can be dangerous. Sometimes the rules rely on multiples of operational data such as number of hospital beds or customers, or a combination: X times revenues plus value of vehicles.
There are a number of articles, lists, and blog posts on various websites regarding the rules of thumb for business valuation, covering how to value a business based on revenue, business valuation multipliers, comparables, and other value measures. Focusing on the measures is less important than understanding the purpose of the valuation and the business itself, both of which will suggest the proper metrics to use in assessing value. To lay the foundation for fair and accurate valuations in any business, apply these five broad principles:.