ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Want to Buy or Sell a Small Business?What is a Small Business Value and How do you Determine It?

Updated on July 5, 2014

What's a small business worth to you?

If you are considering the option of buying or selling a small business there are a number of considerations you need to take into account. An important consideration is how to determine the value of a business.

Although many businesses for sale have an asking price there is very little consistency across the industry in terms of the relationship between asking price and value. Even if there was a consistent pricing metric it wouldn't matter because what's important is what is the business worth to a particular!

In this article we'll talk about what makes a business valuable and how you might look at those value elements. You might also want to review "What do you buy when you buy a business?"

There is an entire science behind business valuation, price of the business, goodwill value, intangible value and all the other arcane and often confusing academic exercises.The important factor is figuring out what the business is worth to you or, if you are selling the business, what it might be worth to someone else.

The Formula

There are a number of pricing models used for small businesses. The simplest and most often used (well, most often if you ignore the prices that are made up out of thin air) method is to create a multiplier chart for each area of the business you feel is important. Typical categories can be seen in the section below. Rate each item on a scale of 0-4, average your results and that becomes the multiple to apply to the business earnings.

Example: XYZ, Inc has SDE of $90,000 per year. You rate the catergories above with scores of 4,2,1,3. Take the average of 2.5, multiply the SDE of $90,000 and you have a selling price of $235,000. Simple, easy and reasonably effective.

Value Multiples Increase as Earnings Increase

Small Business Value Can Be Measured

Many characteristics of a business effect it's value. The principal behind pricing of virtually everything is "lower risk = higher relative value". Here are a few risk elements that could be considered important::

  • Consistency and predictability of profits. Operating profits are what you need to pay yourself and pay any debt that you might incur to buy the business. Consistent earnings make it easier and less risky to borrow money to buy the business. When looking at a specific business you need to assess what the prospects are for the business to continue earning these profits. The value of the business is based on the future earnings.
  • Customer/Client Diversity - A business that has a diverse customer base is more valuable than a business that only has a single customer. If you have a customer doing 70% of the business it would be an obvious problem if for some reason that customer stopped buying your product. If your biggest customer only does 2% of your business that customer would be much easier to replace and losing that customer wouldn't be a financial catastrophe.
  • What makes your business expensive to replicate? - Are there any patents, trademarks, special equipment, special location or any other factor that is difficult to replace? This is where a good reputation and brand can be very valuable.
  • Business Dependence on the Owner - Are there others in positions of responsibility that will be with the business after the seller retires? Having good managers makes the business more valuable. In the book Built to Sell author John Warrilow talks about what features make a business valuable. Before buying a business understanding how you will ultimately sell the business is important.


    0 of 8192 characters used
    Post Comment

    • cheetah786 profile image


      6 years ago

      good topic, value of business is really a matter of importance and should be analyzed carefully..

      really helpful information.. voted up...

    • BizVT34 profile imageAUTHOR


      6 years ago from USA

      thanks Debbie. Knowledge can help overcome fear so keep at it. If I can help please shoot me any questions you might have.

    • Deborah Brooks profile image

      Deborah Brooks Langford 

      6 years ago from Brownsville,TX

      excellent information here and a great read and very useful. I have always wanted to open up a coffee/book store....but I am scared to do it in this economy..thank you for sharing.

      voted up

      have a great day



    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)