What is my business worth? Eventually every business owner asks this question.
Worth, like justice and beauty, all depend upon your point of view. What your business is worth to you is likely a far different number than what I think your business is worth to me.
A business has value because of what it will produce in the future, period, end of story.
Historical profits are only important when we think they are a good predictor of the future. You should base your negotiations on what you believe is coming down the road, not what you see in the rearview mirror. What your business was worth yesterday may not be anywhere near what your business is worth tomorrow.
Don’t allow yourself to get hung up on price. The success of a deal is more dependent on the terms of the agreement than the price at which the deal is struck. $5,000,000 cash up front is more valuable than $500,000 per year for ten years. $1,000,000 with a solid guarantee may be worth more to you than promise to pay you $2,000,000 from future profits that may or may not come about. $500,000 that is taxed to you as a capital gain is generally worth more than $500,000 of ordinary income.
Forget the price. Decide what your after tax walking away money (ATWAM) needs to be to make it worth your while, and let the negotiations begin. If you get your number, walk away happy. If you don’t get it, work on making your business more valuable to the next potential buyer.