How do I determine the value of an existing business?
We are considering purchasing an existing embroidery and advertising specialties business. We would like some guidance in how to value the business. We have researched the value of the building, embroidery equipment being used and related materials (hoops, stabilizers, threads, etc.) and determined that many of the samples are provided by manufacturers to encourage purchase of their products. We feel the business is overpriced based on what we have found, but do not know how to value the current customer list and relationships built with vendors. Any help to find a direction to research would be helpful.
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Here are some articles and opinions that you can read on the web:
- I have a long post on my blog http://blog.timberry.com/2007/01/q_a_selling_out.html
- Small Business Trends recently recommended bizbuysell. Here's that article: http://feeds.feedburner.com/~r/SmallBusinessTrends/~3/149378140/value-your-business-in-ten-minutes-at-bizbuysell.html
- There are a lot of other possibilities out there. Do the web search.
Sometimes people will do a business plan to determine future cash flows as a means to develop a valuation analysis. The business plan helps you think about the value as a matter of future cash. Sometimes the sellers will offer a business plan, and in that case you have to look at it carefully, with a healthy skepticism.