Written by admin on January 11, 2010 – 4:04 pm
Hello Sire,
Charles’ advice is spot on – multiples of gross income do no indicate the profitability of a business. The cap rate you refer to is only as good as the data you can gather from similar operations in a comparable location – doubtful at best.
Instead – I would encourage you to approach your listing price more realistically. That is, if a buyer were to pay cash – what would be their payback period? More likely, a buyer will need to borrow some portion of the sales price. Let’s use 80% of the price as an assumption. After servicing the debt, will they be able to enjoy a return of 20% or more? That’s the target for most commercial loans.
For more information about how to value your business, please visit my blog: http://AustinBusinessesForSaleBlog.com.
Thanks and Good Luck!
Julie A. Barnes, President
SBX, Inc.
Web reference: http://www.SmallBusinessExchange.net
In Florida we don’t use gross sales to determine price because it doesn’t reflect the potential ROI. Instead we use adjusted net profit (owners benefit) and a multiplier based on historical industry sales data
Web reference: www.buyfloridabusiness.net