Several business valuation methods are based primarily on the market price for similar businesses at a given point in time. Business brokers and mergers and acquisition specialists are more likely to favor these methods, at least as benchmarks, since they have access to data about recent sales and merger activity. Ideally, market-based methods should be used in conjunction with an examination of earnings (historical or projected) so that they can serve as a "reality check."

• The comparable sales method attempts to locate similar businesses that have recently sold in your area, and uses those comparable sales figures to set a price for your business, adjusting appropriately for differences. While widely used for real estate sales, this method is difficult to apply to business valuations because of the problems in gathering information about small business sales and because of the unique character of each business.
• Rules of thumb/industry averages are frequently used by business brokers, based on their experience and on published standards for their industry. For example, your broker may tell you that lately your type of business has been selling for about four times the gross monthly revenues. However, a rule of thumb does not take into account any of the factors that make your business unique, and using one can result in setting a price for your business that's way too high or too low. Nevertheless, small businesses are often sold at a price based on rule of thumb, simply because it's a relatively fast, cheap method to use, and because it will result in a price that seems reasonable to buyers who have been looking around at a lot of similar businesses.
• P/E ratios of publicly owned companies in your industry are widely available, and can often be used to set and compare prices for large companies with liquid stock. However, that's the point: these companies' stock is easily bought and sold, and it's easy for any investor to buy publicly-traded stock in many different companies. Consequently, large-company stock commands a premium (perhaps 35 to 70 percent) because it is much less risky than an ownership interest in a small, closely held company. Also, remember that purchasing a small business will usually tie up all the buyer's funds and prevent him from diversifying his risk, which further contributes to relatively low prices for small business interests. For these reasons it's best not to compare the value of your small company with the P/E ratio of a large one, at all.