How to Value a Small Business (Key Factors You Should Consider Before You Buy or Sell)

Years ago I was involved in the sale of a business that I founded. That was way back before the miracle of YouTube when you could go on this social media site and find some videos on how to value a business. So I did what a lot of people did back then, I hired a business attorney to represent me during the negotiations. We went into the negotiation. I remember the negotiation was intense. I remember thinking this isn't going the way I want it to, but I leaned on the knowledge of the attorney. I believed what he was telling me was correct. After a while we negotiated a price. But, I walked out of that meeting thinking, this just doesn't feel right. The number was wrong, but I thought I am going to go ahead with what my business attorney is recommending. Soon after I discovered the price I sold the business for was less than its value. So I resolved to never let that happen again. I dove head first into learning how to value a business and how to negotiate the best price. Since that time I've been involved in almost a dozen startups. I've also offered advice to business owners in the process of selling their businesses. In this video I outline important things you should consider when valuing a small business. There are many other things to know but if you learn the basic steps I outline here you will be much farther ahead of me when I sold my first multi-million dollar business. Feel free to leave comments or questions.

[svandyk]

This is pure gold when it comes to an intro to small business valuation.

[aarongiggers]

So much value in this single video. Im definitely going to watch it one more time and take notes. Thank you!

[ericgonzales]

Thank you so much for this information. The explanation clarified the terms and the approach so much better than other videos I've watched. Thanks again.

[gabesmith]

This is absolutely awesome. I am currently a finance freshman in college and this has helped broaden my knowledge a lot. I’ve been wanted to figure out ways to value businesses and this increased that skill for me, so thank you.

[DanielMartinez-wyir]

Thank you for your useful information, learned a lot!!. I was lookin to get a idea how to value a business

[henrythomas]

Your videos are very useful and provide lots of information. I have received lots of help after watching this post, please continue to share this kind of information. Thank you.

[samfungccim]

Besides risk I also take into account of the leasehold interest (if the lease is no good and expires soon and no renewal term), taking out owner's wages from net income if owner is working there, and the inventory has to add back to the selling price at closing. I also use expenses vs adjusted gross as a percentage to compare to industrial standard, if there is one. Goodwill is also an important factor!

[Deals-and-Exits]

Great information! I have business owners ask me all the time what their business is worth.

[percylekoba]

Great stuff. You were clear and spot on. I look forward to more of your videos.

[fischertoolandgarden]

Good video! We just had someone come in to our shop offering to buy our business. Your example seems like a good way to value our business. Don't know if we are going to sell, but at least we have an idea of what it's worth now. Thank you!

[TaraWagner]

It's amazing how time has created space for more resources to emerge for businesses to grow. Values are very much like underlying motivators and definitely important for all businesses and entrepreneurs. Thank you!

[KristofferAtienza]

Hi Lou. Thank you for your video. Do you have a video that explains what 'Multiples' mean and how it is related to risk?

[zayn]

Really helpful for young entrepreneurs who want to raise capital in exchange for equity

[rp_FGBWA]

WOW! Great information - THANK YOU! We have been in the accounting and finance advisory services business for a long time. We are currently looking into an accounting business as owner is retiring. My challenge is that the executive admin (for 20yrs) said that she was planning on leaving IF the person buying was difficult. She claims to like us, BUT it slipped from her mouth that IF she (should) LEAVE many clients would LEAVE too.. UGH.. How would you handle a situation like that? My husband thinks that she MAY blackmail us into doubling or tripling her pay.. :(

[updad]

Ty Sir, I am being forced to buy out or cell to my partner. I am trying to value it today and this is really helpful and eased my mind..

[sidlechner]

What about the value of inventory, equipment and building? Is this valued added to the value determined by the net sales with adjustments for for add backs times the multiplier?

[cjthegreat]

I think you gave me the answer I was looking for. I'm about to buy a hair solon business. And I wanted to know how many multiples I should use. I'm thinking no more than 2x

[kenho-tingwong]

Hi Lou, thank you very much for your informative video, which has been immensely helpful to me. If I am considering purchasing a small business, should I engage a broker to represent me or hire an attorney to assist with reviewing all the accounting documents? I appreciate your insights on this matter.

[tonye]

100, 000 is not the net income. It is the operating income. You have to factor in interest and taxes to get the Net Income.

[millenialmemoirs]

Wife and I are looking to buy a service business sometime in the next couple years. I work in HVAC currently and make good money but have hit a ceiling and ready to take on some additional risk.