Business valuation is a question that comes up a lot at Vested Business Brokers. How do we determine the market value of a business when the owner wants to sell? Getting this right is critical if you want to sell your business quickly.
There’s all different rules of thought here…There’s the income value. There’s the asset value, etc. However, the way we at our firm look at any enterprise that we’re either going to acquire or help sell is: “What is the earnings potential, and how much is it earning today?”
Every business trades off “multiples” of earnings. In other words, we determine how much the business is earning, and what type of documentation does the seller have to prove to us how much it’s earning. That’s how we determine business valuation. Every industry has a multiplier that it will trade against. We have that database with all of that information.
At Vested, we leverage the information we’ve gathered since we began in 2001. Through our analysis of the data we know that sometimes in geographical areas the multiple is larger than others. In addition, if the business is an absentee run business it might trade at a larger multiple; whereas, if it’s just a cash cow or where the financial buyer will lay out the money and let your management team send them a check every month—that’s a financial buyer—or a financial buyer who wants to be a part of that management team. But, if it’s absentee run, it will always trade at a higher multiple.
Our brokers will be delighted to tell you what the multiplier is. I don’t want to get into it in our meeting today because we represent, I think, four or five hundred different categories of businesses that are for sale.
If you have a profitable business, it will trade against the multiple of the profitability of that business. Our job is to find out how profitable you are and how to tell that story to a potential buyer who is interested in buying it.
If we can help you, it would be our pleasure. Don’t hesitate; give us a call today at (877) 735-5224 to speak to me or one of our experienced brokers.