How To Determine an Offer Price for a Business

If you're considering making an offer to buy a small business, whether it be where you work or where you patronize, you may be wondering how much to offer.

The first thing you will need to do is hire an accountant or a business broker with strong accounting skills to perform a valuation. Much like real estate, you will need to have some comparables. Research how much similar businesses have sold for, or might sell for, in your area. A good local business broker may already have this information.

You should also get at least a general idea of the annual revenue — and perhaps even the profits — of the company that you're looking to purchase. There are services out there to help you get this type of financial data on businesses that are for sale; one such company is called BizBuySell.com.

In performing the valuation, the accountant or broker will apply a "multiple" — common to your industry — to either the revenues or to the profits in order to determine the value. You would then establish a purchase price based on the comparables and the valuation. You or your broker will then present this information to the current owner to back up your offer. The rest is negotiable from that point on.