We often have conversations with entrepreneurs trying to purchase an existing business and struggling to come to terms with its value.
There is a simple way to cut to the chase.
If you need to or plan to borrow money to buy the business and are thinking about using an SBA loan product, the lender will require an appraisal of the company from an authorized SBA appraiser.
The lender will not lend you more than the appraised value to buy the business. So if you and a seller are struggling to come to terms, it might make good sense to invest in an appraisal early on. The objective number on that piece of paper will pretty quickly tell you if you have a deal or not.
You had me at "...good sense to invest in an appraisal..." One way for an existing business owner to know what the real value of the business is to seek an appraisal. I found it very eye opening to have a third party tell me what my business was worth. Hint I am still making changes to increase the true value.