How much should a business sell for?

Question

This is a small vocational school with a gross of $350K to 400K and a net of 25-30K to the S-corp and about the same as salary to the owner. Not a lot of hard assets, been in business 13 years. Possible buyer is a community college. I appreciate your help.

Greg, I agree. I've heard all kinds of formulas, but nothing approaching 20 times net. I'm hoping the reality is somewhere in between the two answers so far. thanks

Answer 1

I disagree with the previous answer.

I've tried to sell 2 businesses in my lifetime. I've listed them with business brokers. Most businesses will sell for 2 to 3 times annual net income, not 20.

20 times net profits is absurd. That means it would take the investor or buyer 20 years just to recoup the purchase price.Call any local business broker to verify this.

I wish you the best.

Answer 2

It is easy to calculate the value. Simply take the current net profit and multiply it by 20. If profits have been increasing over recent years, you add a projected increase for each year. Therefore, if the profit is $25k and the owner is taking $25 as a salary, the profit for his company is actually $50 per year. Multiply $50k by 20 and you get $1 million. That is what the business should be offered at. It's likely that any interested buyer will offer much less, possibly around $600k to $700K and that would be an acceptable offer. If the company held a number of assets, it would be harder to calculate as you would need to estimate the value of each of those assets. If the business owns any Capital, such as the school building and / or the school's grounds, you have to add the current value of the Capital to the sale price.

For those that can't see the reasoning behind 20 years of net profit, you will always be into small business and get ripped off often. The business is an educational institute and therefore is almost guaranteed to attract revenue for the future. Big businesses will pay 20 years of net as they look at long term investments rather than small fry profit for today ones. They will purchase many small establishments to strengthen their "Long Term" projections and portfolios. Remember that a bank will give a 25 or even 30 year mortgage on a house. Therefore, the bank has to wait until after 20 years to get a return on it's investment. Educational establishments are attractive "Long Term" investments as they will always be needed regardless of any changes to the way we live. The Community College will look at 20 years net, as a proposition and will most likely make an offer of 12 to 14 years. The price of a busines is not only based simply on profit but as much value can be put down to competition. If the Community College makes the purchase it will be in a much stronger position against any competition or could close the school to get rid of the competition thus making the school very valuable to the college. In addition, the community college is likely to be in a financial position to make an aquisition. Small minds make little money, those that think big take all the wealth. Had it been a small shop / trader, the business would still be worth 5 to 10 years of profits if sold as a going concern and includes all current stock. Finally, 20 years of net profit is only 2.5 years of the schools gross.

Answer 3

GREG R is right on track. The company should be listed and sell for 2-3 the net annual income!

Now I know where some people get their outrageous asking prices for their businesses... they have been asking KENDAVI.

Good Luck!

Answer 4

If you look at your hard assets and net profits over the 13 years , I would say around 350000-400000 dollars but price it at 450000 so you will have some leeway and get the price you are realistically desiring.