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Ask Dave

Time To Sell

There are a couple of ways to determine how much your small business is worth if it's time to sell.

QUESTION: May has a small business for sale that has averaged $90,000 in profit over the last few years. What would be the best way to determine a value for the business? Quite simple, says Dave.

ANSWER: There are a couple of ways. It’s worth at least book value, which is what you could sell all the stuff off for. There are two other ways to do it. You can either do a multiplier of your gross revenues or a cap rate appraisal process. That second one, I like more.

The way it works is this: if I buy your business, how much would I make on the money I invest? I could make 12% in a mutual fund or 15% in real estate. Most small business people use a cap rate of 20%. If you have real estate, split that out … it can make it easier to sell and also gives you some land to work with.