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Selling Your Business? How Will You Value It?

Written by: Bruce Wood

Article Overview: Ready to sell A Business? Valuations are following a new formula, and market conditions may limit the return you can plan on getting. One option is to use a new online business model as a cushion.

Selling Your Business? How Will You Value It?

Is this the right time to sell your small business? A recent report on CNN noted that median asking prices for small businesses in the first quarter of 2009 was $250,000, but the average sale price was $165,500. Sellers used to base their asking price on three years worth of a company's financials.

That was a rule of thumb to determine how much cash the business would generate in the future. However, that equation is out the window right now. Current pricing is increasingly based on cash flow and revenues, which are depressed now because of the economy.

If income from selling your business is your nest egg, it may be time for you to consider putting off retirement for a few years while waiting for revenues to increase.

Another factor is that with unemployment at record levels, prospective buyers who are looking for immediate cash to cover their living expenses aren't going to buy based on a business' future potential. Buyer interest is up, but many don't have the cash they had a year ago. In addition, the availability of capital from banks and other lenders is still significantly depressed.

The recession is hitting industries across the board, and industry observers don't see prospects improving any time soon.

Instead of selling, small business owners may want to consider starting a second business, in a different industry than what they are operating in now. It is possible to create significant income without committing major funds to a new venture.

One such opportunity exists in a new internet business model. It has helped many current and former owners of brick-and-mortar businesses (including the author of this article) to start over in a new industry without the drawbacks of inventory, overhead, employees and location which limited their previous businesses.

For an initial cost which is less than the price of an average new car, small business owners have transitioned into a new business which has the capability of providing retirement income, and given them the option of waiting to sell their businesses or liquidating and devoting full attention to their new internet business.

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Article Tags: business model, business valuations, selling your business



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