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Valuing Your Homebased Business

The first thing to figure out is whether you're profitable.

Q: We are at the point where we would like to sell our business. We need some advice on pricing a homebased business that does 75 to 80 percent of its sales of customized clothing for the physically challenged on the Internet. Can you advise us on where to find help with this?

A: If anything, the fact that you are selling such a large portion of your product on the Internet may be a plus. Presumably your cost of sales is less than companies that rely on more expensive marketing tools like direct mail and telemarketing. But the real question is not how you are making your sales, but, notes Aswath Damodaran, author of The Dark Side of Valuation, "Are you really making money? If you're not profitable, everything else is secondary." If you're not profitable right now, your company's value will depend on how soon you can project being profitable.

The other major determiner of your company's value is its prospects for growth. Do you expect the company to grow? How much? Is there any uncertainty about its ability to grow? Technology companies always face the uncertainty that a cheaper, better technology will come along. The past 20 years are replete with profitable businesses that relied on a technology being made obsolete by a new technology. On the other hand, the fundamental need you fill in selling clothing to a population with special needs may not be as vulnerable to technological obsolesce.

If your company is profitable or you can accurately project when it will be profitable, you can project growth, and your company's value will be between two and four times your annual revenue. You may want to consider using a business broker to help you sell your business. Links to business brokers can be found at Nerdworld.com.


Paul and Sarah Edwards' most recent book is Changing Directions Without Losing Your Way. Send them your start-up questions at www.workingfromhome.com or through us at Entrepreneur.

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