We are currently looking at purchasing a S-Corporation which the price looks to be a little bit too much. They are basing their price off of the gross income of the last calendar year. The business is a service that gets contracts from the state and then subcontracts the work out. Basically the subcontractors are treated like employees but for payroll and tax purposes its better to keep everyone (5 people) straight on what contracts they worked on and what rate they were contracted to get. Anyhow... we looked at their P/L statement and being that they are a service the Gross Income looks huge because there is no cost of goods or services but if you look at their net income after paying expenses and contractors it is roughly 3/5's of the Gross Profit Income. Reading up on determining a price... you would use the net income and multiply it between 1 and 3 to come up with a fair price. Basically their Gross Profit Income is around 250k but their Net Income was around 115k. In my mind, I do not believe that using Gross Profit Income as a good determining factor for a price. I believe they are off base, we haven't thrown in an offer or agreed to it either.