How much should you sell a business for?
If net profit is X per year - how many multiples of X should a business be sold for? Is there a standard ratio e.g. 4 X?
If net profit is X per year - how many multiples of X should a business be sold for? Is there a standard ratio e.g. 4 X?
For me, I look for net revenue, margins (typically 80% for SaaS), churn rate (revenue and customer), lifetime value per customer, time involvement by owner and market size.
With that, most people look for ROI in 3 years.
Hiya,
It depends on a ton of factors. Many of which are already stated below.
Your ability to sell a business at a favourable price depends much on the following:
spencer@suitebank.com if you want a hand with anything. I love helping people get things in order for a sale :)
Depends on the industry and type of business. Some do a multiple of revenue, cash flow, profitability, enterprise value, etc. I did a stint in M&A but for middle market industrial companies - so my input here is limited. But I learned you can get fairly liberal on what a “comparable” is. My suggestion is to try and find companies that do something similar and operate in the same industries. Find similarities in any sale or acquisition multiples they go through. Very little will be public info so don’t get discouraged.
It depends on the type of business. If it is technology in the software and SaaS space, the industry average is about 6X revenue. In other type of business, it's more like 3-4X profits.
Only 6x? I thought it was more like 20x.
Yes, 6X is the average. But there exceptional cases where we see 10X, 20X, even more. These are the ones that we often see in the media.