Pricing a Business - Factoring in Market Conditions

There are many methods used to value a business. However, most business intermediary's use published multiples (Rules of Thumb) when determining the selling price of a business. An excellent source for these multiples is The Business Reference Guide, published by the Business Brokerage Press, Inc. These multiples are published yearly and are based upon historical selling information within a particular industry. For example, an electrical manufacturing company should be priced at 5 times EBITDA. However, when pricing a business, a broker cannot just rely on these rules of thumb. An experienced broker will know that there are many other factors that must be taken into consideration. Currently, there is a significant factor that is forcing sellers to price their business for less than the rule of thumb for their industry would suggest. The tightening of commercial credit is making it more difficult for buyers to obtain financing. Banks are requiring buyers to have collateral to put up for the value of the loan. However, because of the mortgage crisis, buyers no longer have the equity necessary in their homes to secure the financing. The result, if a business owner wants to sell their business, in many cases they are being forced to lower their price. For more information on current happenings in commercial financing, I strongly recommend you visit Harlan Friedman's blog at http://commercialloanbroker.blogspot.com/. When selling your business, make sure you use a broker that takes all factors into consideration when determining the price. This will help ensure that you business sells in a timely manner.