I own a pharmacy/convience store and am ready to sell. I was told to ask for 5x profit + inventory + goodwill. Does this sound reasonable? Also, anyone have a good formula for figuring"Goodwill"? Thanks-J
Dude, what are you thinking? Take it public.
Profit potential and goodwill are effectively the same thing. You can’t charge for them twice. And the 5X figure assumes that the business will remain steady over the next few years. If you’ve gotten wind that a Walmart is about to open across the street, it’s unlikely that you’ll find a sucker that hasn’t heard it too.
If you work at this business, you should subtract the value of your labor from the annual profit. Buying a business that brings in $60k a year is meaningless if I’m already making $60k. In other words, the business’s real profit is defined as what is left after paying someone to do your current job. So take 5X the companys REAL profit, after taxes, and add the inventory.