You should note that in using this method, a business may actually be worth less than its fair market asset value or in many cases worth substantially more. A seller will be able to get the most they can for a business by showing a buyer the true investment value in the business based on provable earnings. Some business sellers may try to get you to accept their claim that they had significant amounts of cash income that did not show up on their IRS Tax Return and accordingly want you to include this phantom income in your valuation of their business. I highly recommend that you totally ignore these claims and deal only with the business's reported income. Of course, this is not a completely true law of the jungle.
Most sellers are honest people trying to get by in life like everyone else.
However, a buyer should approach all information provided in the sale with some skepticism. Buyers are making a major financial decision and should carefully consider all information presented during a detailed due diligence process. Whenever you look at any business for sale, you should approach the situation with a great deal of caution. You should make it your business to verify all of the facts possible about the business, including determining the reason for sale. There are some very good motivations for sellers to sell and other ones that are not so good.