How Your Business is Valued When It’s Time to Sell

Truforte Business Group - Brokers Blog

Your Business Value May Not Be Worth What You Think It Is

How your business is valued when it’s time to sell is often looked at much differently by potential buyers. Many business owners believe their business is worth more than it really is. This happens because they think about how much hard work, time, and money they’ve put into it. While these things are important, buyers don’t see value the same way. Buyers care about how much money the business makes, what it owns, and how it compares to other businesses like it.

Think of it like selling a car. You might love your car and think it’s worth a lot because of all the memories you have with it, but a buyer will only look at the miles, the condition, and the market price for similar cars.

It’s also important to know that sweat equity—the hard work you’ve put into building the business—doesn’t increase value in a buyer’s eyes. Buyers focus on what the business earns and owns, not how much effort went into creating it.


How Your Business is Valued When It’s Time to Sell

How Business Value is Calculated

There are many complex valuation methods used by Business Brokers and valuation experts but for small to midsized businesses the value of your business could be boiled down to looking a few main things a buyer will often take into consideration:

  1. Your Financial Numbers
    Buyers will look at your tax returns from the last three years to figure out how much money the business actually makes. They’ll focus on things like profits and cash flow because this shows them how much they can expect to earn if they own the business.
  2. The Value of What You Own
    • Equipment: The tools and machines your business uses are valued based on what they would sell for today (fair market value).
    • Inventory: The products you have on hand are counted and valued based on their actual worth at the time of sale.
  3. Comparing Your Business to Others
    Once the numbers are added up, your business is compared to similar businesses that have been sold recently. This helps figure out a “multiple,” which is a way to estimate value based on how much profit your business makes. For example, if similar businesses sell for three times their annual profit, your business might be worth something similar.

Other Things Can Affect Your Value

Not all businesses are the same. Depending on your type of business, there might be extra things buyers care about. For example:

  • Do you have long-term contracts with customers?
  • Does your business rely heavily on you, or can it run without you?
  • Are there big opportunities for growth that a new owner can take advantage of?

A good business broker knows what makes each type of business special. They will help you figure out what extra factors matter in your industry and make sure these are included in your valuation.


Common Misunderstandings When Valuing a Business

It’s easy to misunderstand how business valuation works. Here are a couple of important points to remember:

  • Buyers rarely pay extra for “future potential” unless it’s proven. For example, if you’re planning to expand into a new market, buyers will only see value if contracts or clear growth trends back it up.
  • Your emotional connection to the business doesn’t translate into dollar value for a buyer. They focus only on facts and numbers.

Why You Should Work with a Broker When Selling a Business

Selling a business is a big step, and every business is unique. A Business Broker can guide you through the process, make sure nothing is overlooked, and help you get the best possible price. They’ll understand your industry, highlight what makes your business valuable, and help you set realistic expectations.

If you would like to learn more about what your business might be worth or you how to go about building a more valuable business you may want to considering joining us on Thurs, Feb 13th, 2025 from 10AM to Noon for Truforte Business Group’s business conference “Selling a Business Now or In The Future: Thriving in 2025”. Register here.

Read the Press Release Truforte Business Group Presents “Selling a Business Now or in the Future: Thriving in 2025,” a Game-Changing Conference for Business Owners.

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