[Paul T]

There are several methods...business valuation can be tricky and methods range form very sophisticated to simple multiples of cash flow. For a business of this size, a discounted cash flow valuation is probably the best approach...I think I have a couple of links at the office I can post tomorrow that go into some detail, but it's not too complicated. What type of business is it? It can also be helpful to see what similar businesses are selling for in terms of multiples of cash flow, sales, etc.

Many brokers will use methods like 3x cash flow for "X" businesses and 5x for "Y". While I think there is some merit to this, it pays to look closer at the numbers. Are you looking for SBA or other 3rd party financing? If so, make sure tax returns show all profits or at least enough to support the debt load. Bottom line, if the cash flow can support the debt payments and still afford you a decent salary, and you like the business (most important) I'd say go for it.

The appraiser should use several different methods to arrive at a value, it would be great to have a look at his final report. Generally, it's easier to get financing when RE is involved to. Feel free to PM me, I'm no expert but have been down the due diligence path myself a couple time and am still looking to buy a business, but there is a lot of junk out there....most small businesses lie big time on tax returns which makes financing all but impossible...