The short answer
Business value depends on the earnings a buyer can sustain, the assets included, customer and staff continuity, owner involvement and transaction terms. Revenue alone cannot establish it. Clarify whether you need an initial pricing discussion or a formal independent valuation.
Begin with the purpose of the number.
An owner considering a sale may want an initial pricing conversation, while another situation may call for a formal independent valuation. Be clear about the question you are trying to answer and who will rely on the result.
A useful opening question is: what exactly are we valuing, as of when, and for what purpose? It keeps a casual estimate from being mistaken for a conclusion suitable for a legal, tax or financing decision.
Understand what supports the earnings.
Look beyond the total to the work required to earn it. Which customers contribute? Who manages them? How much of the result depends on the current owner’s skills, hours or personal relationships?
Keep explanations of unusual items specific. Instead of saying last year was exceptional, identify the event, the amount and the evidence. Ask your accountant to help present the records consistently rather than adjusting figures solely to support a desired asking price.
Define what is included.
Create a discussion list covering inventory, equipment, premises, intellectual property and other relevant assets or commitments. Identify what the business owns and what it uses under an agreement. Do not assume the sale package is obvious to a buyer.
If you intend to retain the building or an asset, raise that early. It may change the buyer’s operating plan and the terms needed for the business to continue after closing.
Read the terms beside the price.
BDC notes that the price paid can differ from a valuation and that the terms of a sale influence the outcome. That makes the complete proposal a better basis for discussion than a headline number alone.
For each offer, ask what is paid at closing, what happens later, what conditions remain and what you would still be responsible for. Your advisors can help assess the implications; two proposals with the same stated price may place very different demands on you.
BDC · Selling a business and understanding valuePrepare for a useful valuation conversation.
Bring a clear overview of the company, your goals and the financial information available. Be ready to discuss customer concentration, staffing, premises and the role you would like after a sale.
There is no need to force your business into a universal revenue multiple. Start with its actual operating picture, then ask what further analysis and professional valuation expertise your circumstances require.
General information for people exploring a business transaction. Obtain advice suited to your business before making valuation, tax, legal or transaction decisions.