The bottom line is that a fair price for a business is the amount the seller is willing to take and the buyer is willing to pay.
But before that point is reached in negotiations, buyers want to feel comfortable that the asking price is fair. The best way to do that is to ask for financials and crunch the numbers for yourself.
Analyze financial statements for the last several years, as well as the current statement. Consider the history of the business, personnel, market position, equipment, location, amount and terms of lease, years in business, client list, the reputation of the business, and the competitive environment.
But the things to pay closest attention to are cash flow and profits. Cash flow is the inflow and outflow of money from a business. Profit is what’s left after all expenses are deducted from revenue. It gives the overall picture of a business.
There are a number of methodologies that can be used when considering valuation of a business. Numerous books are available on each of them. However, if the business is listed with a professional business broker, the broker will have helped the owner determine the listing price so you can be comfortable that it’s a fair estimate of the true worth of the business. Successful business brokers know market values in their area.