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Richard - Bizlaw
Richard - Bizlaw, Attorney
Category: Business Law
Satisfied Customers: 10639
Experience:  30 years of corporate, litigation and international law
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This is not really a question on business LAW as it is on possibly

Resolved Question:

This is not really a question on business LAW as it is on possibly business accounting?
Question is: I'm in early negotiations with a small business owner in regards XXXXX XXXXX his business. Is there a proper and simplified formula I can use in order to arrive at a fair price for this business? If so, what formula would you recommend? Thanks
Submitted: 6 years ago.
Category: Business Law
Expert:  Richard - Bizlaw replied 6 years ago.
What is the nature of the business? How long has it been in business?
Customer: replied 6 years ago.
It's a small vacuum sales and repair shop. Very small floor space inside but location is excellent, high traffic area, good exposure, and has been established for over 30 yrs. but has had new ownership the past 2-3 yrs. so not sure if that helped or hurt previous business. Minimal parking as well. He only showed me records from last year and the net income was below 28K but I'm sure it can do much better. Does this info. help?
Expert:  Richard - Bizlaw replied 6 years ago.

You need to get more historical data. The most prevalent standard for purchasing a business is a discounted cash flow. You need to see historical figures to get an idea of what the trends are for the business, whether it is growing, declining or flat. Since this business does not seem equipment intensive, you might consider working off a multiple of the net income and I would use after tax income. You could pay three to four times net income. That would put the value at between $75-100K if the net income was $25K. This assumes the income is steady over the last few years. It is critical to look at those trends.


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