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 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 route business sales, and our access to national comparative data for recent transactions in a wide range of industries keep us up-to-date and informed about current prices 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.
- Income Approach: This analysis assumes that the buyer is looking at a business as an investment and is primarily interested in ROI (return on investment). The business value is derived by a multiple of 3x to 4x the seller’s discretionary earnings. This method relies on future projections and growth rates to decide what the business may be worth.
- 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 to reduce income taxes, the financial statements must be recast in valuation to show the true monetary benefits of owning your business.
Typically, we will review the last three (3) years of business financials and recast them to reflect the discretionary earnings of the business. We will also conduct an in-depth interview with the owner 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 demand, quality of workforce and management, company structure, terms of payment for the acquisition, the type of buyer the business would bring, and current economic conditions.