price tag on your business, or deciding how much to pay for a business, can
plunge you into murky territory. No one wants to sell themselves short when it
comes to something they have invested substantial personal and financial resources
in, and of course no one wants to overpay. So what are some standard
considerations which come into play?
Records: If you
don’t already know how to read and understand the financial documents which
reflect the fiscal health of a business (income statements, balance sheets,
etc.), learn or consult an expert. These documents reveal critical information
about current finances as well as important growth trends which are fundamental
method can be used for retail or manufacturing firms, especially those for
which income has fallen flat. It involves calculating the fair market value or
replacement cost of the business’ assets (usually equipment and inventory).
Sale Price of Similar Businesses: Comparing how much others have paid
for similarly situated businesses can be very useful in the valuation process. However,
the value of this information is correlated to just how similarly situated the
businesses are: are they in similar locales, with a similar market base, with
similar assets and a similar outlook?
approach is usually applied to businesses with several years of profitable
activity. It involves calculating the amount of income the owner can expect to
enjoy based on past performance of the business. This amount (discretionary
earnings) is arrived at after adding back all owner benefits, such as return on
investment, a living wage, personal expenses, depreciation, debt service
expenses, and others. An appropriate multiple is then selected (based on market
and financial factors) and applied to arrive at the valuation.
business is a critical and complex process. Seeking the advice of one or more
experts is often advisable. Our Senior Broker, Cortney Sells, will take the
responsibility off of your shoulders by providing a complimentary business
valuation. Because The Firm only sells cash-flowing, profitable businesses, she
utilizes the Income Approach method detailed above to generate a fair and solid
valuation of your business.