How do you determine the value of a small business if a potential buyer approaches you?

Three years net earning.

Plus the value of any chattels, which are inventory, machines, fixtures, buildings, vehicles and the like.

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It is exactly the total value of all the shares of that company.

If you want a buy company, you should buy 100% shares of that company.

Like any other income generating asset, a small business is worth the present value of future earnings. Many people simplify like the first answer with a formula, such as 3 years of earnings or 1 times annual sales or something like that.

Normally, you would include a calculation for the balance sheet, too. Thus, if you have capital equipment, cash, etc. and no debt on the company, then you would increase the value by that amount.

The responses you'll see here are just guidelines and since you'll only do this once or twice in your life (most likely), you would do well to hire an attorney and a professional advisor, such as an investment banker. The money you'll save on making a bad deal will more than pay for such advisors.