A widget shop, is not a widget shop, is not a… In other words every business is unique and finding the value in a book just doesn’t work (very well, usually.) At best, finding the right price for a business for sale in a book should only be a single source and not the source weighted the most.
Q. Why? (Thanks so much for asking.)
A. Because 1) each owner does things differently, 2) a location can make a tremendous difference for some businesses, 3) the age of the business can make a difference, 4) the market served can make a difference, 5) competition can make a difference, 6) and what ever else you can think of.
Q. Are there averages? Knowing these averages can help a business-for-sale owner rethink how they are operating to improve.
Q. What does matter then?
A. Cash flow to owner and asset value are queen and king, with the queen typically taking the prime position. Know what your cash flow is and make it better without sacrificing quality and service.
A smart owner will monitor cash flow as a key indicator as, through this, careful cash flow enhancement should ultimately put more money in the owner’s pocket when ultimately wanting to sell the business.
See http://www.score.org/valuing_small_business.html for a definition of cash flow, paragraph titled “Adjusted Net Income.”