How to Build a Business Others Want to Buy

Chapter 26How to accurately value your business and get the highest sale price

If you're selling your business, the first question on a prospective buyer's mind is the business's worth. Similarly, if you were looking to purchase a business, you'd want to determine its value. Valuation is a complex process that involves assessing several variables, and there are various approaches to determine a business's worth.

To begin, it's essential to establish a fair price for the business based on objective data rather than subjective estimates. Instead of arbitrarily selecting a number, conduct a thorough analysis of the business to determine a rational valuation. The buyer needs to see value so if all the future profit opportunity is stripped out before they even buy, the deal won't take place. If you're doing the valuation yourself, make it as unbiased and accurate as possible. Inflating your numbers will only hurt you in the long run, provide an incorrect picture of your business and turn away potential buyers.

Valuing your business

Irrespective of how you value your business, before you even think of selling, you should do the following.

Learn how to value a business

You'll need to get familiar with the most important terms that determine the value of a business. For example, one of the most important terms you should look into are seller's discretionary earnings (SDE) and earnings before interest, taxes, depreciation and amortization (EBITDA).

SDE and EBITDA are arguably the ...