http://www.sba.gov/content/buying-existing-business
Determining the Value of a Business
There are a number of different methods to determine a fair and equitable price for the sale of the business. Here are a few:
* Capitalized Earning Approach: This method refers to the return on the investment that is expected by an investor.
* Excess Earning Method: Similar to the capitalized earning method, except that it separates return on assets from other earnings.
* Cash Flow Method: This method is typically used when attempting to determine how much of a loan the cash flow of the business will support. The adjusted cash flow is used as a benchmark to measure the firm's ability to service debt.
* Tangible Assets (Balance Sheet) Method: This method values the business by the tangible assets.
* Value of Specific Intangible Assets Method: This method compares buying a wanted intangible asset versus creating it.
Determining the Value of a Business
There are a number of different methods to determine a fair and equitable price for the sale of the business. Here are a few:
* Capitalized Earning Approach: This method refers to the return on the investment that is expected by an investor.
* Excess Earning Method: Similar to the capitalized earning method, except that it separates return on assets from other earnings.
* Cash Flow Method: This method is typically used when attempting to determine how much of a loan the cash flow of the business will support. The adjusted cash flow is used as a benchmark to measure the firm's ability to service debt.
* Tangible Assets (Balance Sheet) Method: This method values the business by the tangible assets.
* Value of Specific Intangible Assets Method: This method compares buying a wanted intangible asset versus creating it.
