How Much is Small Software Business Worth?

One colleague of mine asked me a question – “I have a selling software product. How much is this software business worth?” I think I can give an advice.
A small software business can be owned and operated by one person: a developer, salesman, manager, and holder – all in one. This business could be run at home or in a small office. It does not require massive investments to grow up – only a computer, Internet connection, web site, and lots of hard work. Well, you have run it, you are working hard, designing your product, promoting your site, attracting customers – and one day you feel you are rich and tired. You wish to load off your mind and sell your business with potential to grow.
How much does it cost?
Let’s say, for simplicity – you have designed the software title; possess a well-known web site; have a stable income and no registered legal entity, patens, or licenses. You are not selling your permanent assets – computers, developments tools, telecommunications, and the like. You have no other staff but yourself.
Here is a simple estimation formula:
Business costs = (Month net income * Forecasting period) – Holder changing expenses
Month net income = Income – Tax rate – Overhead expenses – Development costs

For example:
You are selling the software for $4000 per month.
You are paying the 20% taxes.
Expenses are $250 per month for hosting, advertising, etc.
You are planning – your software will be selling for the next 3 months without additional design and development. So the development costs = $0, Forecasting period = 3 months.
If you do not have a registered trademark, patens, LLC – your Holder changing expenses and registration fees = $0. So, the buyer spends nothing for registration.