To be clear, we are not financial people, nor are we valuers. However over the years, we have helped many business owners sell their business, so we have an idea on how to get a rough ide of what your business might be worth.

Firstly, it’s a cliché, but you need to be aware that the old adage “turnover is vanity, profit is sanity”, is very true. Unless your business is profitable, neither you nor any potential buyer are making money out of it.

What is an acceptable level of profit can vary  hugely from one business to another. Businesses with high overheads may only make 5-10% of their turnover as profit. Low overhead businesses could be as high as 40 – 50%. There is no right answer here but 2 things are true – firstly you need to know what profit you are making and secondly, have an idea on whether there are efficiencies that could help make your business more profitable. This is even more important if you are building to sell, as you want to make your business as attractive as possible to potential buyers.

Once you have worked out your profit, most business are valued on a multiple of profit. Businesses which are heavily dependent on the owners, might only be 1.5 – 2 times profit. Others which are heavily asset based or ongoing repeat business, might get up around the 7-8 times. It will also be useful to look within your industry at what is a “usual” multiple for your sector.

You will sometimes here the phrase EBIDTA mentioned. What that essentially means is that when you are looking at your financials, you can take out any expenditure which is not ordinary and usual in order to increase your profitability. This is on the basis that one off costs, will not need to be paid again in the first few years of the new owner being in charge.

Sometimes a buyer will be interested in a particular business as it has some specific intellectual property in it, such as a brand name, or some technology. Or an attractive premises. In which case profitability may be less important.

One thing is clear, is that you need to go into the market place, knowing what you want to achieve or you won’t be able to evaluate the offers that may come towards you.