February 4, 2009 10:29 AM EST
Valuating a company can be a bit tricky. From what I have heard for small businesses is that often the revenue is used as a basis for coming up with a sale price. The idea is that other businesses often figure that with their "superior" management style, they can trim the expenses a lot more, so they are often more concerned with revenues than profits (Dan Kennedy describes this concept in his book, "How to Make Millions with your Ideas").
One way you can come up with a sales price is use your revenue and divide it by your annual return %.
Let me walk you through one possible way you can do this, since this can be confusing for some:
-Determine what your total profit has been over the past two years you have been in business
-Now subtract the amount you initially invested in the business from the the two-year profit
-Divide this number by the amount you initially invested into the business
-This will give you your return over the past two years. Divide this number by two to determine what your average return per year was.
-Now take your most recent annual revenue and divide it by this average annual return.
-The resulting number is a selling price that you can start at.
Again, valuation is tricky and this is a very quick way of valuating your business. Your business may sell for less, since the most probable selling price wont always be the same as what your business is worth. This will at least give you a ballpark figure on where you can start from. If you can find out the average value of other clothing companies of your size, that can help you to refine this number further.
If I confused you at all, I apologize. Feel free to PM me if you need clarification on the steps above.
---Motivation for Entrepreneurs