The crucial issue in selling a business is to receive the maximum selling price for your business. There are 15 common valuation formulas used (actually 14, since the last method is a combination of the others). In our experience, most of these complex formulas end up valuing the business at around five times net profit plus the fair market value of assets. Ultimately the value or sale price of the business is a subjective opinion that you and your buyer can agree upon.

Some of the formulas are very complicated to calculate. If you would like to know the details on how each works, just e-mail us (see Send E-mail below and choose the "Buying or Selling a business" Topic). The valuation formulas are:

Past Transactions	Adjusted Net Assets
Assets "Plus"	Liquidation
Capitalization of Earnings	Capitalization of Cash Flows
Capitalized Distributable Earnings	Ratio Multiplier
Excess Earnings Return on Assets	Excess Earnings Return on Sales
Discounted Earnings	Discounted Cash Flows
Discounted Distributable Earnings	"Rule of Thumb"
Combination

Professional practices are valued differently. For example, accounting practices are usually sold based upon a low multiple of the gross revenue, regardless of profits. Legal practices have no value at all (except occasionally in some state courts and only for divorce purposes). If you are in one of the traditional licensed professions (law, medicine, accounting, engineering, architecture) then you should ask your professional association for a book on valuation methods - or e-mail us with your question.

You can spruce up the price of the company if you start about a year before you plan to sell. Push sales aggressively. Also, delay making all but the most essential repairs, maintenance, asset purchases or replacements, hirings, and anything else you can postpone. It will be difficult to sustain this "pumped up" profit level, since you will find it exhausting. However, for 6 to 12 months of extra effort you will get a five-fold return on your effort.

When you present the profit of the business to prospective buyers, be sure to provide a schedule reconciling your various tax reduction efforts (auto, fringe benefits for officers, board meetings, relatives on the payroll, etc.), so you can show the true, more healthy profit, and thus collect a higher sale price.