If I made X amount of dollars per year from my business or app, and someone offered to buy it from me, what would be a reasonable amount to sell it at? A year's worth of income? Two? Three? Five? This is all curious speculation. I have nothing to sell.

I don't really know but I'd guess 1-2x the net income in a year.

There are lots of methods of valueing a company. Check out http://www.mergers-acquisitions.com/valu.html.

So, the simplest method is divide yearly income by 4%? They give an example of $10,000 a year,
so it comes out to 10,000/0.04 = $250,000. That's like 25x income. I was way off. Very nice. :)

Quote: Original post by JakeM
So, the simplest method is divide yearly income by 4%? They give an example of $10,000 a year,
so it comes out to 10,000/0.04 = $250,000. That's like 25x income. I was way off. Very nice. :)

I think you misread the article, or really didn't read it at all. That's like saying "I sold this program for $100 in 1 second" and extrapolating that to "therefore I'm making $8,640,000 per day with my program."

Quote: Original post by JakeM
So, the simplest method is divide yearly income by 4%?

No, that was a very simple made up example using a buisness that has zero risk. In reality there are no zero risk businesses - software development/publishing certainly isn't one. The numbers used in that example aren't real.

[Edited by - Obscure on January 23, 2006 4:46:38 PM]

Quote: Original post by JakeM
If I made X amount of dollars per year from my business or app, and someone offered to buy it
from me, what would be a reasonable amount to sell it at? A year's worth of income? Two? Three?
Five? This is all curious speculation. I have nothing to sell.

There are calculations and then there's fantasy land. And I think fantasy land is more the norm than you might think.

A lot of companies start with an idea that they will exit through acqusistion, even with the partner all picked out! So what they do is tailor their product/offering to maximize the pay out. A perfect example of this is Visio.

That being said, if you are desparate for cash, floundering about as a business, have a contentious board of directors/owners, expect a high number of potential buyers to walk, or offer you a lot less than you expect. VCs for example, love deep, deep due dilligence and detailed exit strategies in pretty excel sheets, but Ive seen deals go south for minor personal reasons.

Best regards,

Chikako Hatanaka
Meshbox Design (a division of Proactive International)
http://www.meshbox.com
http://www.proactive-intl.com