Hints & Tips: How much should I pay to buy a business?
A common mistake is to evaluate a business based only on its assets (property, equipment, furniture, etc.). However, the real value is based on established clientele, sustainable sales and PROFITS - you can buy equipment, furniture and rent a shop, that does not mean you have a business!
The key figure to consider is Profit before Interest, Depreciation and Tax, for short the "
EBITDA". This figure is more representative of the profitability and cash flow of a business than Net Profit, it is also a better way of comparing different businesses.
A reasonable price for a small business can range between X2 to X5 the EBITDA, depending on the sector, business risk and other characteristics unique to each business. Ask us for a valuation if you are planning to buy a business.