I am no expert at valuing businesses, but I can say that one of the most common ways that business are valued is as a simple multiple of net income. The multiple varies by the kind of business it is. The riskier the business, the lower the multiple. So, if the business has a net of $65K then, the multiple would be about 3.7, (3.7 x 65K = 240K). A common multiple used is 3. So, a risky business would probably have a smaller multiple. I've seen some businesses such as independent restaurants valued as low as 1 times their net income. Restaurants are typically risky ventures. Very safe businesses may have very high multiples, much higher than 3. But, I don't think anything is as simple and clear cut as this.
Of course the business assets, such as equipment are probably not included in the equation. So, maybe you would subtract them off the purchase price. Say they had equipment worth $40,000, then maybe you should be dividing $200K by 65K to arrive at a multiple of almost 3.1.
If it was me, I would also have to consider what my debt load was going to be. I'm guessing that the people who are selling this business don't likely have nearly as large a debt load as you will have spending $240,000 for it. Figure out how much your payments are going to be, then subtract them from that $65K, then see if there is anything left for you. All this assumes that their stated income is correct. You should really have somebody qualified examine their financial records or statements to see if there are any hidden pitfalls.
I won't say if the price is fair or not. That's up to you, but I tend to want something concrete for my money. Paying for a business over and above the concrete value of assets, is called paying for "blue sky". Something to think about.
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