Evaluating Your Business

The market value of a business is based on the following:

• Tangible and intangible assets.
• Cash flow and other financial benefits.

Value Estimation:

Individually or family owned businesses with gross sales of one to three million dollars generally sell for the current value of the assets, plus one to two and a half (rarely three) times the net earnings. Depending on the business, when earnings are growing consistently the value is closer to the high end. If the earnings are stable and have been stable for several years, the value is generally around the mid-range. If the earnings are declining, depending on the cause of the decline, the value could be below the bottom of the sale mentioned above.

Businesses with revenues of over three million and less than ten to twelve million generally sell for multiples of three to six times earnings. These are very broad ranges and are only a guideline. Several factors enter into the valuation, based on market conditions, the general state of the economy etc. Businesses with revenues of more than ten to twelve million dollars are generally valued on a case by case basis. Most industries have several rules of thumb when it comes to valuing a business, and an experienced broker can best evaluate your business. We act as facilitatorsby listening to both sides and getting the perspectives of both sides. Since buyers are more comfortable speaking to a third party than speaking to the seller and the brokers have already established a good rapport with the buyer, it is the logical approach for the buyers to take. Our function is to get a meeting of the minds. This is one of the most difficult parts of the deal. It requires the ability to ensure that both parties are satisfied and are comfortable with the final contract modifications.

Business brokers have first hand knowledge of what similar companies are selling for. Very often sellers tend to inflate the amount they received and are therefore not a reliable source for this information.

Knowing what your business is worth can avoid a costly mistake of under-selling the business. It can also prevent your business from being priced over market value, a mistake which may in turn prevent the business from being sold. This is a very important consideration.