Valuation for Selling a Business

Are you preparing to sell your business, or planning to trade in the next 5 years? As a business owner, determining the value of your business early on can help you better structure your business for future transactions. If you plan to exit the market in the next 5 years, it would be wise to understand the baseline valuation of your business now.

As a professional business valuation agency, Savoir can help you fully evaluate the value of your business and provide you with strategies to optimize your business value. Through professional valuation analysis, you can develop better growth strategies and ensure that your business gets the best price when it is sold.

Below, we’ll look at the key steps in selling a business and how a business valuation can help you throughout the transaction process.

Available online

Business Valuation

2 hrs • Free

Pre - Transaction preparation

Before selling a business, it is important to develop a clear exit plan. The core goal of an exit plan is to maximize the value of the business and ensure that you do not miss out on potential gains during the transaction. Without a sound plan, the business may face the risk of low valuation or poor transaction conditions when it is sold.

Business owners who clearly define their exit goals and execute effectively are usually in a stronger position to negotiate a deal. If your business is not currently in an ideal state to sell, a business valuation can help you:

✔ Understand the current market value of the business and clarify the baseline valuation;
✔ Discover the growth potential of business and develop strategies to enhance their value;
✔ Optimize financial structure to increase the attractiveness and saleability of the business.

Savoir focuses on providing high-quality business valuations for small and medium-sized businesses, helping business owners prepare for sales in advance and ensuring the best returns from the final transaction.

Determine the selling price

Setting a reasonable selling price is one of the most critical steps in selling a business. To ensure that the price is neither too high nor too low, it is recommended to have an independent business valuation conducted by a professional valuation firm.

Why Setting the Right Price Matters

If the asking price is too high, it may:

Deter potential buyers, leading to a prolonged listing period
Limit buyers' financing options, making the transaction difficult to complete

On the other hand, if the price is too low, it may:

Result in a loss of potential profits from the transaction
Fail to reflect the true value of the business

A professional valuation helps justify your asking price, instill confidence during negotiations, and speed up the sale process. Generally, the closer the asking price is to fair market value, the faster the business is likely to sell.

Choosing a professional valuation firm, such as Savoir, ensures an accurate assessment of your business's market value and helps you make sound transaction decisions.

Methods for Determining Business Selling Price

Professional business valuation experts typically use multiple valuation methods to calculate fair market value. Below are the most common valuation approaches:

Market Comparable Method

The market comparable method is one of the most widely used valuation techniques. It involves comparing the transaction prices of similar businesses. Valuation experts use private market transaction databases to find recently completed deals involving comparable businesses and use this data as a reference.

Best suited for: Industries with a high number of comparable transactions, such as retail, manufacturing, and technology.

Advantages:

Based on real market transaction data, making valuations objective and reliable
Reflects the current market's perceived value of similar businesses

Limitations:

If no recent similar business sales exist in the industry, there may be a lack of reference data

Industry Multiple Method

This method estimates a business's value by applying industry-standard financial ratios to key business metrics such as revenue or cash flow. It is one of the most popular valuation techniques.

Common valuation multiples include:

Revenue Multiple: Suitable for high-growth businesses with lower profit margins
EBITDA Multiple (Earnings Before Interest, Taxes, Depreciation, and Amortization): Commonly used for mid-sized businesses with stable profitability
Seller’s Discretionary Earnings (SDE) Multiple: Used for small businesses, reflecting owner-adjusted net income

Advantages:

Applicable across various industries
Allows comparisons with similar businesses to set a reasonable price range

Limitations:

Not suitable for businesses with fluctuating profitability, as it assumes stable future operations

Asset Valuation Method

The asset valuation method calculates a business's total asset value, including tangible assets (inventory, equipment, real estate) and intangible assets (brand, goodwill, patents, intellectual property).

Best suited for: Asset-intensive industries such as manufacturing, real estate, and agriculture.

Advantages:

Provides an accurate valuation for asset-heavy businesses
Establishes a clear minimum value for the business

Limitations:

Does not consider future profitability, potentially underestimating the business's true market value

Discounted Cash Flow (DCF) Method

The discounted cash flow method estimates business value by forecasting future cash flows and discounting them to present value. It is ideal for businesses with strong profitability and predictable growth.

Best suited for: High-growth businesses such as technology firms and professional service companies.

Advantages:

Considers future earnings potential, providing a long-term business valuation
Ideal for high-growth companies and larger enterprises

Limitations:

Future cash flow predictions involve uncertainty and require careful assumptions
Complex calculations requiring professional valuation expertise

Capitalized Earnings Method

This method estimates business value based on historical financial performance, assuming future earnings will remain consistent. It is often used for small businesses with stable revenue and profit trends.

Best suited for: Small businesses with steady financial records, such as retail stores, restaurants, and professional service firms.

Advantages:

Simple to calculate, making it suitable for small business valuations
Reflects the actual operating capacity of financially stable businesses

Limitations:

Not applicable to businesses with highly variable earnings
Does not factor in future market changes, potentially underestimating high-growth businesses

Choosing the Right Valuation Approach

There are various ways to assess a business’s value, and each method is suited for different types of businesses and market environments. The most accurate valuation results often come from combining multiple methods to cross-verify and ensure objectivity.

Whether you are planning to sell your business, optimize financial structures, or pursue strategic mergers and acquisitions, professional business valuation services provide essential decision-making support.

Understand buyer types

When selling a business, it is important to understand the different types of buyers and what they are looking for in a business. There are three main types of buyers:

Individual buyers

Selling a business to an individual buyer is often the quickest way to close a business. Many business owners choose to sell to existing employees because they are already familiar with the business operations.

However, individual buyers typically purchase at a lower price than strategic or financial buyers. These buyers typically finance through loans, but loan approval and transaction closing may take 30-90 days.

Strategic Buyer

Selling to a strategic buyer, which typically includes a competitor or a larger company looking to expand its business through acquisitions, is often the longest-term option.

Strategic buyers are willing to pay a higher price because the synergies of a merger can increase the overall value of the enterprise. For example, the merger can reduce operating costs, expand market share, or optimize supply chain management.

Financial or corporate buyers

Sales to financial or corporate buyers fall somewhere between individual and strategic buyers. These buyers are primarily focused on return on investment and are looking to purchase a business with long-term profit potential.

Common financial buyers include private equity firms, which typically acquire businesses and optimize operations with the intention of selling or taking them public in the future.

Seek professional support

It is recommended that a professional business valuation agency conduct an enterprise valuation before selling the business to ensure that the transaction price is reasonable. As a professional business valuation company, Savoir can provide fair and reliable valuation reports.

In addition, we also recommend consulting the following professionals to ensure that the transaction is compliant and completed smoothly:

Legal advisor: Ensure that the transaction complies with relevant laws and regulations, and draft sales contracts to protect the rights and interests of the seller.

Certified Public Accountant (CPA): Assists in preparing financial statements, filing taxes, and provides financial planning advice.

By working with business valuers, legal advisors and accountants, you can ensure that every step of the business transaction is professionally guided, achieving a smooth transition and maximizing transaction benefits.

赛富

生意买卖

企业估值

财务顾问

Business Valuation