What’s Your Business Really Worth?

Before you try to sell, make sure you know what buyers want.

Some people are saying that 2005 will be a big year for acquisitions, and — judging by the businesses I’m in — I don’t doubt it. Document destruction companies have been getting snapped up lately, and the market for records storage businesses has been hot as well. In an environment like this, it’s only natural that many business owners would be looking for opportunities to cash out. Unfortunately, most of them have grossly inflated notions of what their companies are worth.

You can’t value a company simply by looking at its sales. Yes, every industry has a rule of thumb for doing valuations and usually it’s expressed as a multiple of sales, but that’s a matter of habit and convenience. What most buyers are interested in is something called free cash flow, and free cash flow is a function of profit, not sales.

From: Inc. Magazine, April 2005 | Page 55 By: Norm Brodsky

Full Story: http://www.inc.com/magazine/20050401/nbrodsky.html