Originally Posted by coryjsmith18
Does anybody have experience or preference with a valuation tool that can help me understand what a business is worth?
From my research and experience, business valuation is a specialty and a bit of an art. If it's a mature business that is done growing, the buyer may be interested primarily in the income and will be thinking some multiple of net income (say, 1-3x). If there's growth potential, maybe more.
If it's a product business, they'll be looking at the cost to bring a similar product to market themselves, plus the cost of having to compete with you and being that much late to market. My company was a product company (software and custom hardware) and when negotiating a price I pointed out it based on what I put into the project, it would probably cost them $2 million to try to recreate it themselves (based on industry wages and costs to hire subject matter experts, project managers, etc) and they quickly agreed with that. Plus, it would take them some time and lost opportunities before they could sell it, plus there was a risk of project failure. What are those intangibles worth to a buyer? We agreed on a little below $4 million which I found out later (because I went to work for them during the transition) was what they had valued it at too. They didn't care at all about my revenue, because they were a lot larger and could get it into much larger markets.
So yea, it depends.