Does anyone have experience buying a firm? How is valuation determined? Should I be focusing on gross or net revenue? Any insights would be appreciated!

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I recommend you consult with someone that handles business valuations specifically. There are so many ways to skew the numbers one way or the other. Gross vs net is not the only thing to look at. A true business valuation is expensive, but would provide you with insights into the true numbers.

You don’t want to invest in someone else’s business and then find out it’s only profitable because the owner, who is now stepping out, works a ridiculous amount of hours.

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You’ve got to know how much money it takes to make it work, too. Hopefully you have that information as well. If you have the financials already, then that makes it easier for a professional to get started. Hopefully this turns out to be a good opportunity for you.

Alot of that will depend on the nature of the business, the assets owned by the business (building owned or leased? Office equipment etc), it’s size and “goodwill.”

A rule of thumb I often hear for buying a solo is the taking the owner’s take home salary for 1 year as the value, pushing it sometimes as high as 3-5 years depending on client retention and repeat business.

They seem to be using gross as their base which seems too high, it’s not a guarantee that I will make the same. I’ve heard at looking at net and doing a multiple of that. Haven’t heard of the take home salary rule, I don’t think they’ll go for that tho. Appreciate your reply!

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