Small Business: Buying or Selling a Small Business

The Law Offices of Ronald S. Kahn & Associates

Small Business: Buying or Selling a Small Business - Part 1

Keywords: Valuation; appraisal; comparable; asset; income; small business; buy/sell; due diligence; keywords.

What's it worth?

There are 3 approaches to valuing your business: 1) Comparable or market value;2) asset valuation; and, 3) income approach.

Comparable valuation - What have similar businesses sold for in the past. Various businesses use a variety of benchmarks that are used to create a comparable value. For example, one common benchmark is that the selling price is a multiple of annual income. Trade journals, local newspaper and business brokers are sources of comparable values.

Asset approach - What is the value of the various assets of the business? Your real estate lease could be more valuable than your on going business. What are your vehicles, computers, customer list worth? Add'em all up and decrease by the amount of outstanding liabilities such as mortgages, business loans or other debts.

Income approach - What rate of return would I expect from am investment of $X in this business? Compute the average net income of the business and divide by the desired and realistic rate of return. Try 20% to 30% as a benchmark.

Performing the computation is simple but determining the various component values is not a simple task. Experts are a big help. Brokers can advise on comparable values and standards in the industry.

The Next Step

An old legal maxim is: "The deal isn't done until the last penny is paid." It's the job of your lawyer to make sure that you do your due diligence and you buy/sell what you intend to buy/sell. Part 2 will address some of the legal issues.

We can help you investigate and negotiate item such as purchase price, sellers representation, compliance with all laws, licensing, requirements and codes.

You have the knowledge to operate a successful business. We are very skilled in helping you buy or sell your business.

How to Buy or Sell A Business, a booklet published by the SBA, includes information to help you price your company, set terms and evaluate offers. Cost is $2. Write to SBA Pubs, P.O. Box 46521, Denver, CO 80201 and ask for publication MP16.

"The National Business Exchange," sponsored by The Lexis-Nexis Small Business Service, is an on line listing of small businesses for sale throughout the United States, Business descriptions are free. The cost to download each contract name and telephone number is 95 cents. Use this link to reach their

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