Business Valuation: Lending to the buyer of a business

Yesterday I got an email from a lender/client of mine. Her borrower is buying the business and she is trying to assess whether the purchase price is in line. Check these resources to better understand how businesses values are set: The Journal of Accountancy suggests www.go-iba.org/blog for a discussion group of Institute of Business Appraisers members.

A search on the internet found two more:

http://valuationresources.com/Misc/ValuationMultiples.htm which is interesting. I cannot vouch for them at all, but it gives you an idea of the variation among industries and if you think you’ll have enough use for it, gives you a report you can purchase that covers many industries.

http://www.novarsgroup.com/prep-plan/worth.html#aa gives a primer on business valuation and some possible formulas. The short answer, there is no general rule that applies to all industries. Understanding how businesses are valued by the professionals and then discussing how the buyer chose their value will help you assess whether the buyer has done their homework.