That's a true statement as far as it goes but it doesn't take into account that way you arrive at a value for your business can give you much-needed ammunition when it comes to justifying your asking price and therefore allow you to influence what prospective purchaser is willing to pay.

Here's a quick primer of various methodologies commonly used for valuing businesses (for purposes of imminent sale or otherwise):

1. Asset Valuation

This is used by businesses with predominantly physical assets, especially inventory. Typical businesses that would use this approach are manufacturing and retail. The valuation takes into account following figures: (a) fair market value of fixed assets and equipment; (b) value of leasehold improvements; (c) owner benefit (the seller's discretionary cash for one year - comes from adjusted income statement); and (d) inventory.

2. Capitalization of Income Valuation

This is used by businesses with predominantly intangible assets. It places no value on physical assets, only intangibles. Typically used by service businesses. Under this method, various factors are given a weighting of 0-5 with 5 being most positive score. The average of these factors yields "capitalization rate" which is then multiplied by buyer's discretionary cash (75% of owner benefit defined in 1. above) to arrive at market value of business. The factors to be rated are: (a) owner's reason for selling; (b) length of time company has been in business; (c) length of time current owner has owned business; (d) degree of risk; (e) profitability; (f) location; (g) growth history; (h) competition; (i) barriers to entry; (j) future industry potential; (k) customer base; and (l) technology.

3. Capitalized Earnings

This method is based on rate of return anticipated by investor. Small businesses are expected to have a rate of return of 20-25%. So, if your small business has expected earnings of $10,000 for year, its value may be $40,000 - $50,000.

4. Cash Flow

This method is simply based on how much of a loan purchaser could get based on adjusted cash flow of business. The adjustments to cash flow are for amortization, depreciation and equipment replacement. Obviously, when using this method, value of business fluctuates with changing interest rates.

5. Discounted Cash Flow

This method discounts business's projected earnings to adjust for real growth, inflation and risk. It calculates value today (i.e., discounted for time) of business's future earnings.

6. Leapfrog Start-up

This is used when buyer wants to save him or herself cost, time and effort of ramping up a new business. The buyer estimates what it would have cost to do startup less what is missing plus a premium for saved time. The more difficult, expensive or time consuming start-up would otherwise be, higher value that will be arrived at using this method.

7. Excess Earning Method

Similar to capitalized earnings approach, but return on assets is separated from other earnings which are deemed "excess" earnings generated. The return on assets is usually determined by industry averages.

8. Owner Benefit Valuation

As indispensable as it is, unless you’re using it to secure capital or financing, it needn’t be overly complex and exhausting. So let’s make it easy. We’ll cover some basic guidelines, enough to help you create one you can use.

Here are six sections you should write into your business plan.

COMPANY PROFILE

This is first section you’ll write because it drives remainder of your plan. What is your company’s mission? What are you trying to do? This section describes why you’re in business. If this section reads "I’m in business to make money", you’re in trouble. Any company can say that. Instead, profile section should describe how you’re going to meet needs of businesses or consumers in such a way that you can make money. You make money by

1.meeting needs of customers

2. at a price they’re willing to pay

3. at a cost at which you can make a profit

MARKET ANALYSIS

A critical component, this section should demonstrate your knowledge of market in general. It involves thinking about what you can do better than others in same business, and honestly acknowledging what can they do better than you. Look at your competitors, compare them with your company. What you’re looking for is what Xerox called a USP, a "Unique Selling Proposition" and what I call a JND, a "Just Noticeable Difference" that makes you unique or different.

How is your industry doing? Is it growing? Shrinking? Are there barriers to entry that will keep others from offering same product (service)? Are big boys moving into your territory?

Also consider: Is your competition local, regional, national or global?

Consider external factors over which you have little or no control, such as economy or changing laws or regulations.

MARKETING PLAN

This section outlines your sales strategies. You’ve got something to offer. Here you describe how you’re going to let people know about it. Advertising? Press releases? Direct mail? Word of mouth? Flyers? A blimp?