How do you price a business to sell?

How each and every business is priced is different. Some of the major things that are taken into account when a business is valued include financial performance, in particular profitability, gross sales, the business industry, location, assets, intellectual property, real estate included, liabilities, revenue model, client list, cleanliness of financial records, existing staff, payroll, leases, inventory and barriers of entry. While there are a variety of other things to consider depending on the type of business, these are the core things to consider. Generally all of these items are taken into consideration and a multiple should be placed on owners discretionary cash flow, EBITDA, or gross sales to price a business correctly. Generally any real estate or assets with transparent value will be added to the business value itself.

As an example, restaurants may be priced anywhere between 1 to 5 times owner discretionary cash flow with the average generally in the 2-3 times. Some factors that effect that multiple price of the business include the stability of the profitability, the quality of the current assets, the remaining terms of the lease, whether the restaurant is a franchise, the location of the restaurant, whether the name and menu are included, existing debt, and goodwill.  Generally you can consult a business broker that specializes in your business type to get a up to date multiple on your industry and a free business valuation.


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