How much is your business worth?

When thinking about selling their company, usually the first question a businessperson asks is "How much is it worth?" Unfortunately there is no cut-and-dried answer to the question. Entire books have been written about valuation. There are so many variables involved (and many of them are very subjective) that different experts looking at the same company could end up with different selling prices. There are some commonly accepted techniques and rules of thumb used, which are presented here.

Basically, there are two major ways to figure the price of a small business. One is the company's ability to generate sales, cash flow and/or profits. The second method is to value the company based on its assets. There are additional factors that can be considered as well but most companies fall into the first two categories. Which method is used depends on the condition of the business and the industry it is in.