How do you determine the value of a small business if a potential buyer approaches you?

Answer 1

1. Compare it to other similiar businesses at the same point in the growth cycle.
2. Ask an expert, either an accountant or someone who makes a living brokering businesses.
3. Look at the net worth of the company on the balance sheet.
4. Estimate the revenue and profit for the next 10 years and take the profits and using today's interest rate, discount them back to determine the value today.
5. same as #4, but use the cash flow that the company generates.
6. There are many books and MBA classes that relate to this subject, take one or read one.
7. Try to find a second or third interested buyer, and start a bidding war.

Answer 2

Check if the busy has got enough cash float and if the business is stable, as in have they got enough assets to get them through the deal and still have enough cash left for other deals. Check for the status and reputation of the business in terms of payments, have they kept up with the payments to various people and businesses? Satisfy urself that the business is reliable and that they are going to be able to pay u for what ur going to do for them and then go for the deal. And when u make the deal have a written agreement as to the date of payment, date of delivery of goods , etc.

Good luck.