How Much Can I Sell My Business For? - FAQs Answered

Once you set out to sell your business, the main question on your mind is, “How much can I sell my business for?"

While asking this is perfectly okay because it is one of the most crucial parts of a business sale, there's more to it than just the possible sale amount.

It's important to know the factors that determine the sale price, how to calculate the price, and how to increase the value of your business. Let’s learn all these in this guide.

TL;DR - How Much Can I Sell My Business For?

You can sell your business for several hundred thousand to billions of dollars, depending on the factors listed below:

Business size
Business financial health
Growth potential
Business dependence
Customer and supplier concentration
Industry and current market trends

We'll discuss these in detail in an upcoming section, but determining how much your business is worth is a narrative rather than a plug-and-play formula, and it can be overwhelming.

At Exitwise, we can help you value your business accurately and tell its narrative to potential buyers to achieve the maximum sale price possible.

How? We'll help you hire and manage the best M&A experts, such as tax accountants, M&A advisors, and wealth managers, who can help you determine how much you can sell your business for.

You can consult our team for free for hiring and managing the right M&A experts who will help you value and sell your company.

How Do You Value a Business?

You can value your business using different valuation methods, including:

Market-based valuation
Discounted cash flow method
Seller's discretionary earnings method
EBITDA multiple method
Asset-based method
Revenue multiple method

The method you use to evaluate your business depends on its size, growth stage, and available data, among other elements.

Business Valuation Formula

There are different business valuation formulae, depending on the valuation method.

Most mid-sized businesses use the EBITDA formula, while smaller businesses use the seller's discretionary earnings formula. Bigger businesses or companies that can better predict their cash flows use the discounted cash flow formula.

Based on this information, the three most common business valuation formulae are shown below:

Business value = Seller's Discretionary Earnings x Multiple (with the multiple coming from comparing the SDE multiples of recently sold similar businesses in the market)
Business value = Adjusted EBITDA x Multiple (with the multiple being from comparing the EBITDA multiples of recently sold similar businesses in the market)
Business value = CF₁ ÷ (1 + r)¹ + CF₂ ÷ (1 + r)² + … + CFₙ ÷ (1 + r)ⁿ

Where:

CF₁ and CF₂ = Cash flow for years 1, 2, and so on
CFₙ = Cash flow for the nth year
n = the forecast period number (number of years)
r = Discount rate

Key Factors That Influence Business Valuation

The value of your business can increase or decrease at different points in time, depending on various factors. Let's discuss some below.

Business Size

As a big company, you can command a higher value and sale price. Mid-sized and small businesses have lower valuations because they have fewer assets and lower profit margins.

Business Financial Health

A financially healthy business gets a better valuation than the one that is gasping for air.

Some good indicators of excellent financial health include low debt levels, high profit margins, and consistent revenues.

Growth Potential

A reasonable valuation looks past a company's current performance to consider its growth prospects. If a company is growing well, it can attract a higher valuation.

Business Dependence

It's risky if your business relies too much on the input of one or only a few turnkey individuals.

Such a business sees a lower valuation than one highly independent of its owner or key employees.

Customer and Supplier Concentration

You'll want your business to have a good distribution of both customers and suppliers to balance revenues and product inflows.

Balancing these aspects reduces risk, thus increasing the value of your business.

Industry and Current Market Trends

If the industry your business is in is on an upward trend and there's high demand for businesses like yours, the valuations are higher.

6 Common Business Valuation Methods

Let’s discuss the different valuation methods and how you can use each to calculate the value of your business.

1. Market-based Valuation

M&A experts compare the selling prices of similar businesses in the same market to determine their profits or revenue multiples, which they can use to evaluate similar businesses.

For example, if your business makes $250,000 in annual revenue and similar businesses sell for 2.5 times their annual revenues, your business's value would be $625,000.

2. Discounted Cash Flow Method

The discounted cash flow method is a thorough formula that projects a business’s annual cash flows several years into the future and discounts them to present-day values.

Later on, we'll have a model valuation using this method.

3. Seller's Discretionary Earnings Method

As a small business owner, you often wonder, “How much can I sell my small business for?". The seller's discretionary earnings (SDE) refers to the financial benefit a business owner takes out of the business annually.

Business value = SDE x Multiple

If you have $250,000 in annual SDE, and similar businesses sell for two times their SDE, yours would be worth $500,000.

4. EBITDA Multiple Method

If you want to determine the worth of your business using its EBITDA, multiply the annual EBITDA by a market-derived multiple.

EBITDA = Net income + Interest + Taxes + Depreciation + Amortization

Here's a quick model EBITDA multiple valuation based on the following assumed financials:

Net income: $1,000,000
Interest expense: $40,000
Taxes: $60,000
Depreciation: $60,000
Amortization: $30,000

EBITDA = $1,000,000 + $40,000 + $60,000 + $60,000 + $30,000 = $1,190,000

Based on this amount, we can calculate the business value using the formula:

Business value = Annual EBITDA x Multiple

Let's say your business or company is in the real estate development sector, which posts EBITDA multiples of 17.93.

Business value = $1,190,000 x 17.93 = $21,336,700

If you would like an easier way to determine your company's value using its annual EBITDA, look no further than our handy valuation calculator.

5. Asset-based Method

You can use the asset-based approach if your business has plenty of tangible assets.

Remember to account for all your intangible assets, such as brand reputation and tax-attracting goodwill, which boost the valuation.

Business value = Net assets - Total liabilities

Let's have a model valuation:

Building value = $350,000
Inventory = $100,000
Goodwill = $300,000
Office furniture and equipment = $250,000
Vehicles = $100,000
Short-term debts = $70,000
Long-term debts = $150,000
Other liabilities = $55,000

Sum of all assets = $350,000 + $100,000 + $300,000 + $250,000 + $100,000 = $1,100,000

Total liabilities = $70,000 + $150,000 + $55,000 = $275,000

Business value = Net assets - Total liabilities = $1,100,000 - $275,000 = $825,000

6. Revenue Multiple Method

The times revenue method applies a multiplier to the average annual revenues of a business. To get the business value using this method, multiply the revenue with a market-derived multiple.

For example, if your engineering business has had an average revenue of $450,000 for the last three years, you can use the 1.5x—2.5x typical multiple for engineering firms.

Business value = Average annual revenue x Multiple

Business value = $450,000 x 2.5 = $1,125,000

How Much Can I Sell My Business For?

We mentioned that you can sell your business for anywhere between a few hundred thousand and billions of dollars.

An even more accurate answer to the question is to list some of the multiples or ranges at which similar businesses sell in a given industry.

Generally, most businesses with under $1 million in sales revenue sell at a 2.5x -3.5x revenue multiple.
According to NYU Stern, verticals in the same industry can have different EBITDA multiples. For example, the healthcare products vertical has a 21.51 multiple, while the healthcare information technology vertical posts a 21.44 multiple.
The typical multiplier for engineering firms can be between 4.1x-9.1x EBITDA multiples.
Most small businesses generally sell at 2-3 times their seller's discretionary earnings.
According to NYU Stern, industry subsectors can have different revenue multiples. For example, the real estate development subsector has a 4.38x multiple, while real estate operations and services sell at a 1.51x revenue multiple.

To put a specific amount to a model business sale, we can use the discounted cash flow formula for a hypothetical business with the following metrics:

Cash flow for Year 1 = $3,200,000
Cash flow for Year 2 = $3,700,000
Cash flow for Year 3 = $3,800,000
Discount rate, r, = 4.5% (0.045)

Apply the DCF formula:

DCF = CF₁ ÷ (1 + r)¹ + CF₂ ÷ (1 + r)² + … + CFₙ ÷ (1 + r)ⁿ

DCF = $3,200,000 ÷ (1 + 0.045)^1 +$3,700,000 ÷ (1 + 0.045)^2 + $3,800,000 ÷ (1 + 0.045)^3

DCF = $3,062,200 + $3,388,200 + $3,329,927 = $9,780,327

Therefore, the business value would be $9,780,327

We understand that determining how to price a business to sell it isn't easy. But you can get all the help you need with your valuation and sale if you reach out to us at Exitwise to initiate a free consultation.

Frequently Asked Questions (FAQs)

Now that we have tackled the elephant in the room, let's examine other questions you may have.

How Much is a Business Worth with $1 Million in Sales?

A business with $1 million in sales revenue is worth $4,380,000, assuming similar businesses sell at a 4.38x revenue multiple.

Business worth = Sales revenue x Multiple = $1,000,000 x 4.38 = $4,380,000

What is the Role of an M&A Adviser in Business Valuation?

M&A advisers are critical to business valuations and sales because they guide founders and business owners through the selling process to attain a maximum sale price.

When you work with us at Exitwise, we help you manage your dream M&A team, which includes M&A advisors. These advisers work with other experts to conduct reverse due diligence, value and market your business, and close the sale.

How Can I Increase the Value of My Business Before Selling?

Here are strategies to use to increase the value of your business:

Time the sale to coincide with a period of internal growth or favorable market conditions
Improve operational efficiency in aspects like production, payroll, scheduling, and inventory management
Build a strong management team that can operate well without your daily input
Mitigate potential risks that may put off buyers, such as limited products or services and unassignable contracts
Create a strong market position by differentiating your business through competitive advantages like unique branding, advertising, and innovation.

What Are the Risks of Overvaluing or Undervaluing My Business?

The most significant risk of overvaluing your business when you want to sell it is scaring away potential buyers. If you undervalue your business, you risk leaving money on the table.

Conclusion

Besides answering the question, “How much can I sell my business for?" with a specific amount, we’ve seen various ways to express the value using different multiples.

The key thing is that answering the question with a figure can be challenging. However, at Exitwise, we take on the challenge of helping you work with M&A experts to evaluate your business and even sell it at a favorable sale price.

Let us work with you today to determine how much you should sell your business for based on its specific attributes.