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Q: I am new to this and trying to sell my first business. Something is not clicking for me, if I say I want a lower 3 year average return on investment, why does that make the valuation go up? I would think it would be just the opposite. What am I not getting?

A: This is the return for the purchaser. If the purchaser wants a % return of 10% and the business generates a $1000 then the valuation is $5000 ie 20% of $5000 is $1000 . If required return is 10% then the valuation is $10000 ie 10% of $10000 is $1000. So the lower the required return the higher the valuation (assuming all else remains constant).

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