How to determine the value of a business
There are numerous methods for determining the value of a business, however, as a general rule a business is valued at 2 to 4 times the business owners benefit based upon the businesses financial records. The business owners benefit will typically include their salary, dividends, health insurance, company car and any other expenses paid by the business for the benefit of the owner.
Although this is the general rule, there are many factors that can impact the valuation, such as contracts or the lack of contracts, employees, trends, cash flow, lack of processes and procedures, liabilities, etc…. To get the most out of your small business, prepare for the sale at least 3 to 5 years before you are ready to sell, and get your CPA, attorney, banker and business broker involved in the process. They can help you prepare and implement a plan that will maximize the sale price of the business.