How Much Is Your Business Worth?
How much is your business worth This is the first question business owners want to be answered before deciding to sell. If the business is priced too high in the marketplace, you run the risk of being on the market for too long a period of time and scaring off potential buyers. If it is priced too low, you will be leaving money on the table.
Our daily interaction in the marketplace, our extensive private database of actual business sales, and access to national comparative data for recent transactions in a wide range of industries keep us up-to-date and informed about current prices actually being paid. Based on our experience, we can provide you with a value range that you are likely to achieve in the current market so you can make an informed decision as to whether to pursue a sale of the business now or delay to a future date.
We provide this pre-sale business valuation at no cost or obligation to the business owner.
Why? There is no question we would like you to consider us as your representative in the eventual sale of your business.
A reasonable value range can be established using a combination of commonly used valuation approaches:
- Income approach. This analysis assumes that the buyer is looking at a business as an investment and primarily interested in ROI (return on investment). The businesses value is derived by capitalizing some level of earnings using a cap rate, discount rate or multiplier. This method relies on future projections and growth rates to decide what the business may be worth.
- Asset-based approach. This method adjusts the assets from their reported book value to their in-place market value utilizing cost and market data to derive the business value. It uses tangible assets such as furniture and equipment, and intangible assets such as trademarks, copyrights and patents. For the most part the asset approach does not properly represent the value of an ongoing business that has positive earnings.
- Market Approach. This method produces a value using comparative ratios derived from past transactions of privately-held and/or publicly-held companies, and rules of thumb. Each industry has rules of thumb formulas that may be used as a guide in combination with other techniques. This method can be very reliable in most cases and is a strong indicator of value.
Since profits on financial statements and tax returns of most privately-held businesses are usually minimized in order to reduce income taxes, the financial statements must be recast or adjusted in a valuation to show the true monetary benefits of owning your business.
Typically, we will review the last three (3) to five (5) years of business financials and recast them to reflect the Seller Discretionary Earnings (SDE) from the business. We will also conduct an in-depth interview with the owner in order to understand the strengths and weaknesses of the business as well as the value drivers that it may contain.
Some factors, or value drivers, that will be taken into consideration in determining the business value will include growth potential, competition, regional and industry demand, proprietary products or processes, favorable lease terms, advantageous supplier relationships, quality of workforce and management, concentration of customers, terms of payment for the acquisition, the type of buyer the business would bring, and current economic conditions, to name a few.
Upon completion of our valuation of your business, we will discuss our findings and suggested price range for marketing the business and explain how it was determined.
If you would like to discuss the potential sale of your business and want to find out how much your business is worth, you should consult Sunbelt Business Brokers and Business Brokers South, the valuation specialists. Give us a call!