Business valuation requires professional expertise and experience. For large businesses, we always advise our clients to invest in the services of a Professional Business Appraiser to assist us with coming up with a value for your business. However, for the majority of small to mid size businesses, we have the experience and knowledge to determine the asking price.
There are several factors involved in calculating a reasonable asking price for your business. Please contact us and let us have a discussion on how we can help you, and how our customized marketing plan will get your business SOLD.
To begin with, we will need a few documents from you ahead of time. Please review the Selling Process for a complete list of pertinent documents needed in order for us to valuate your business.
Your financial statements are the primary tool used to calculate an asking price for your business. We know that for the majority of small businesses out there, financial statements do not reflect the real income of your business. We need to calculate your Seller Discretionary Earning.
Most small to medium size businesses operate such that they minimize their tax burden by creative accounting. The Seller Discretionary Earnings is the amount of money that is a direct benefit to the current owner. This can include salary, profit, finance charges, automobile expenses, meals and entertainment, travel and any other amount that would not exist if the current owner was no longer in charge. On your financial statements these amounts can add up to a substantial sum of money, all for the benefit of the owner.
In order to come up with an asking price, we also need to figure out a reasonable multiplier. The rule of thumb is to use a multiplier between 1 and 3. Whether this multiplier is 1 or 3 or higher, needs to be carefully analyzed by us. Factors that we take into consideration are:
- The number of years you have been in business,
- Your profitability,
- The number of years you have been the owner of this business,
- Your Lease term and amount,
- The annual profit increase or decrease,
- The competitiveness of your industry
- The location of the business,
- The popularity of the business,
- The trend of the industry,
- And more
Most buyers are purchasing an income stream which will provide a living for themselves and their family. What your business is worth depends upon a number of factors, and evaluating a business is multi-faceted and no set formula works for all. Ultimately, a business is worth what the market will pay.
I am confident that I have the knowledge, and the expertise to help you reach your real estate goals. Please contact me and tell me about your business. I’d love to put a SOLD sign on it!