That’s right, your business is probably not worth what you think it is.
There are a lot of reasons for this, but frankly, it boils down to money! If your business is not making any money, it is probably not worth much, even if you have X dollars in assets.
“But wait, I have $500,000 in assets!” – So what! What good is $20M in assets if it doesn’t generate you any money? If anything, all you have is the value of what your used assets are. If you have a business that has a lot of assets, but doesn’t generate any money, than your business is probably not worth a lot.
Oh, you make $75,000 a year in net profits, well your business will not receive the same industry multiple as the same exact business that makes $150,000 or $300,000 a year in net profits.
Why is that? Well it is because most people who have saved hundreds of thousands of dollars to buy a business can probably go out and get a job making $75K a year without having to pay or buy a business. Additionally, they wouldn’t have the same headaches or liabilities.
“But wait, there is tremendous potential and with the right new owner, this business would make much more. So that’s why we should sell it for more.” – WRONG!
No buyer is going to buy a business that doesn’t have potential to grow, so they expect every business to have tremendous potential if they buy the company.
That being said, businesses who make $100K or less a year in net profits or discretionary seller’s income, should expect selling their business for 1 to 2 times their net earnings.
Please contact us if you have any questions or want to learn more. We are here to help and offer more than just helping you sell your business, we can help you grow it too. Ask about our sales and marketing training – Wishing you the best, Alex Khabbaz, Managing Partner and Austin Business Broker for Texas Business Brokers.