Valuation of a Small Business – Only You Decide It's Value

When I was a kid, my Aunt Sadie could tell when it was going to rain. If her knee hurt, it was; when, was another question. She would guess at that, and sometimes be correct, but it obviously was more coincidence than knowledge.

Moral of the story? Trying to determine what your small business is worth is a similar shot in the dark. There are too many issues involved to determine a real number. You can certainly say it is worth ‘x' times earnings, but those ranges are usually 2 to 5 times, or whatever. The spread between two times $100,000 vs five times $100,000 is a pretty big number.

Don't forget about the ‘when and how' paid questions. All cash up front? No cash down, big bucks based on future earn out? If you don't get it up front, there's a very good chance you will not get it later.

Wait until your CPA advises you about the differences in tax rates for ‘goodwill', fixed assets, non-compete clauses, etc. You will quickly learn that the buyer wants the amount paid to be allocated to different assets than you do, and the spread of tax rates is significant. My Uncle Sam (not related to my Aunt Sadie) enters the picture here with his opinion, which usually turns out to be the right one.

The idea that you want the best price for your business is a nice idea, but there is no such thing, as there may always be a better offer coming your way. The best idea is to establish a net figure (after tax) of how much you want for it, when you want it, and most importantly, how badly you want it.

If you are really determined to sell your business, at your price, do what you have to do to find the right buyer, and forget about counting the Washington's, just count the Benjamin's. Take the first good, firm offer, and get it sold.

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