|
Every business owner wonders
what their business is worth. VR has correctly valued tens of
thousands of businesses since 1979. Contact
Us for a FREE, no
obligation estimate of the value of your business.
When you work with a VR
Intermediary to develop a valuation report, the goal is a simple
one, the creation of an accurate and comprehensive document that
will stand up to scrutiny. You will receive a professional business
valuation that becomes the best tool to obtain maximum selling
price. Without a professional valuation, a business owner must
be prepared to defend his opinion of value. VR's depth of experience
coupled with a vast knowledge of valuation will result in an expert
opinion of value, delivered in a responsive, timely and efficient
manner. VR has valued and sold virtually every type of business.
Small and mid-sized
businesses typically depend on four key value factors:
- Seller's Discretionary Earnings (SDE)
- Risk
- Terms of the Sale
- Industry
Seller's
Discretionary Earnings
The main factor of determining value for small and mid-sized businesses
is the total cash flow benefiting the owner - also known as Seller's
Discretionary Earnings (SDE). SDE is calculated using the following
six categories:
- Profit or loss as reported
- Owner's Salary
- Discretionary Expenses
- Non-recurring Expenses
- Non-cash Expenses
- Expenses not included in the P&L
Once theses categories are
added together and an SDE is developed, a multiplier is applied.
The multiplier can range from 1 to 5 (or more), depending on many
factors, to arrive at the appropriate value for the business.
Risk
The second valuation factor is the level of risk. Factors in this
category include:
- Years in business and with the current
owner
- Profit trend
- Quality of books and records
- Franchise membership
- Brand recognition/ strength
- Level of competition
- Dependence on current owner
- Diversification of customer base
- Lease length and terms
- Asset value
Terms
of the Sale
This is the one source of value that the business seller can almost
completely control. Components of the terms include:
- Down payment
- Interest rate
- Monthly payment
- Non compete agreement
- Seller training of buyer
The majority of sales include
the seller to provide some level of financing to the buyer of
the business. With seller financing, the seller receives part
of the purchase price at the time of the sale ("the down
payment") and the remainder over several years. The buyer
uses the cash flow from the business to pay off the debt. Structuring
a sale with attractive terms can significantly increase the value
of a business.
Industry
Certain businesses are valued at five times the seller's discretionary
earnings while other businesses only bring 1 time. An important
reason in determining the multiple of SDE is the industry
of the business. Certain industries are more desirable than
others. Factors influencing desirability include:
- The fun & ease of operating the
business
- Location
- Facilities
- Employee relations
- Operating hours
- Growth potential
Valuing Your
Business
To estimate the value of your business, we will consider all
these factors, the selling prices of comparable businesses,
as well as any other factors unique to your particular business
that may make it more valuable. Contact
us
for a free, no-obligation estimate.
|
