How much of your expenses are tied to you and your partner’s salaries, taxes, and benefits? That could help figure out the valuation.
You’re asking this forum? Just flip a coin. What type of business is it? Is there any debt involved?
Do you own the building? A lot of key details are missing here. You should definitely get an independent appraisal.
When you mention profit, do you pay yourselves separate salaries or is the profit you mention your only income from the business? The value should be based on the average profit over the past 3-5 years, with a multiple that can go up to 7x if the business is capable of growth. If you and your partner are taking salaries out before the profit is calculated, that’s another thing to think about.
@Brett
We take salaries separately for the hours we’re working.
I’ve heard that generally, you can use the profit from the last five years. But every business is different, and getting an independent appraisal or talking to a tax expert is the best option.
There’s just not enough info here to give you a solid answer. As others said, an independent appraisal is a good idea, especially if you want to keep a good relationship with your partner. At least it will give you a starting point for negotiation.
Definitely get an appraisal, but remember, something is only as valuable as what someone is willing to pay for it. Have you thought about trying to sell to a third party?
If profit and free cash flow don’t improve, it really depends on whether the current margin issue is temporary. If it can get back to previous margins, it might still be worth around $900K or more. But with current performance, it might only be worth $150K. But as others have said, more info is needed.
If the business is non-profitable, it’s only worth liquidation value. If the assets are worth less than $300k, your partner might be betting $150k on returning the business to profitability.
A valuation and a clear offer will help both sides feel better about the deal.
I think the biggest issue here is that you’re not sure whether or not you want to sell at all. If you feel like the business has potential, it may be worth waiting for a higher offer.
It seems like your partner might be offering you a fair price based on current performance, but it’s hard to say without knowing the long-term potential. If you’re ready to walk away, consider it.