What is the best way to determine a small business worth for sale? What the sell price should be?

Question

I am in the process of purchasing a washateria (Laundromat) and would like to know the best way

Answer 1

In pricing a small business, the involved parties typically negotiate a price with the following factors. You must take into account the actual physical property (land, furniture fixtures and equipment), and also consider the value of the expected income of the business over some years of operation and the risk undertaken in operating the business.

Answer 2

There are two values: one for the seller and another one for the buyer.

The value for the seller, as Freddie said, is related to the actual value of the projected profits, discounted at a certain discount rate.

That discount rate depends from the risk associated and other opportunities where to invest the money.

If the buyer would not change the business, and has the same reaction to risk than the seller, probably arrives at the same value.

But very often, the buyer can dramatically improve the future profits.
This is often done via getting more customers, reducing personnel, integrating the operation with a current one (eliminating the redundant expenses), getting a better rate of capital, etc.

This sound a bit theoretical.

But before you buy you must demand to see the actual profits of the last 3/5 years. (from the income tax declaration)

You will see the actual profits, together with all the money retired by the owners as employees.

How many years of profits is the value? Difficult to say.

Conventional wisdom used to say 5 years of profits. (late year)

It could be 3 or 6 but not much different.

But remember that the value for you could be higher if you have some way to dramatically improve current profits.

Sorry I cannot be more precise.

Send me the figures that you get if you want more free guidance.