Entrepreneur's Journal: So, what is your business worth?

There are three ways to value a small business - whether you plan to sell yours or looking to buy one:

1. Based on the business earnings.

2. Using market comps to sales of similar businesses.

3. Based on business assets.

It is a good idea to appraise your business using the methods under each one of the above approaches.

http://www.valuadder.com/valuationguide/business-valuation-three-approaches.html
http://www.valuadder.com/tour/business-valuation-tools.html
http://www.valuadder.com/extras/business-valuation-tools-video.html

Also any licensed Business broker can evaluate your business also Members of IBBA or other Business Broker association very qualified to evaluate and sell (or buy another) your business

When you're ready to sell your business, or buy one, a business broker can navigate you through the process. I'm with BusinessBrokers.com and MergerAcquisition.com. We have a HUGE Internet presence with more than 800 websites that bring buyers to us. (PR.com is one of those.) We can guide you to a valuation company. Email me for more information at: lmanheim@businessbrokers.com

VenturePointOnline.com; An online resource for people seeking to buy or sell a business offers a "professional services" directory with CPA's, Business Attorneys and Business Brokers that can help assist you in your area of interest.

http://www.VenturePointOnline.com

Fine, but this piece tells us nothing most business owners don't already know or haven't thought of. I've a 100+ unit storage facility in a small southwestern town, grossing over $5K p/mo, costing $2500 and change, management included. I pay almost zero attention to it. I own the acre of land and everything on it. I pay electricity and phone, and phonebook advertising. What's it worth?

After all, it's common for owners to use their business to pay for personal expenses. Thus, it's important to factor our certain items (for example, depreciation is a non-cash expense).

should that read ..factor OUT certain items.....
does the author proof read his work? What is his education level? Enough to valuate your business?
Maybe yours, but not mine, thanks.

Sunbelt Business Advisers is the largest business brokerage in the United States with an office in every metro location across the country. If you want to get a valuation or an idea of the value of your business, talk to an expert at no cost. At Sunbelt, if we don't sell, you don't pay! Check out www.sunbeltnetwork.com for answers to all your questions.

Sunbelt- Huntsville, AL 256-539-9999

BUSINESS PURCHASE, SALE OPPORTUNITIES ABOUND INCHANGED ECONOMY, TROOP BUSINESS BROKERAGE EXEC. SAYS

WESTLAKE VILLAGE, CA – In a rapidly changing economy, two powerful forces – mid-management corporate professionals caught in downsizing seeking cash flow, and business owners burdened by the fiscal strains of their companies – are converging to present unprecedented small to mid-size business opportunities, an area business brokerage specialist reports.

Randall J. Barondess, director of Troop Business Brokerage/Commercial Real Estate in Westlake Village, CA, says objectively evaluating the prospects for the sale or purchase of a business is critical to this process. Troop Business Brokerage helps companies package themselves for sale, and assists potential buyers find the right company to fit their needs.

“In the past year, there has been a major increase in mid-management corporate professionals who have lost jobs because of the economic downturn and need cash flow. Concurrently, there are numerous people who own businesses, are having trouble, or are burned out, many facing long leases. Acquiring businesses that are objectively evaluated can be a viable alternative for both parties,” Barondess said. He added that the influx of immigrants has intensified this demand.
Barondess emphasized that there are three key factors he uses to evaluate businesses. He calls them the “Three S’s’. They are:

° STEADY – Those businesses reflecting no more than 7%-10% variance in fiscal quarters from year-to-year, with no more than a 10%-12% annualized change of gross revenue.
° SUBSTANTIAL - Changes in business conditions, employees, equipment, other hard assets, lease or options, cost of goods, and comparatives to industry standards. Abnormalities in these areas must be viewed as red flag for further due diligence.
° SUSTAINED – Market share, continuity of product or services, personnel, methods of accounting, inventories, condition of premises and equipment are all essential in establishing realistic values for a business.
Another area where Barondess helps small to mid-size businesses is realizing “phantom assets”. “These include under market rate leases, goodwill, location and pass-by traffic,” he said.
He noted that if business real estate is part of a company’s assets, Troop Business Brokerage/Commercial Real Estate will handle the disposition or re-lease of the property to the new business owner.

“People need to understand that they need an objective view of their property. Many of them don’t realize that if they run their business to live on, the business is running them. But, if they run it to capitalize on it for retirement or to make money, then they’re running the business for the right reason. We analyze businesses in this light before we market them,” Barondess concluded.


He concluded by noting that Troop Business Brokerage represents many businesses in the small to mid-market arena. EBITDA and SDE (Sellers Discretionary Earnings) analysis “is part of our service and essential to successful transactions,” Barondess said. Troop also represents many qualified investors seeking good cash flow opportunities, he added. Barondess can be reached at (805) 990-9940.

Troop Business Brokerage has 14 offices serving most of Southern California.


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On the question of earnings adjustment raised by Lance:

You need to recast your Income Statement to reflect the discretionary items. These "addbacks" are done in order to demonstrate the available business cash flow.

In small business valuation we use the so-called Seller's Discretionary Cash Flow as the earnings basis:

http://www.valuadder.com/valuationguide/seller-discretionary-cash-flow-business-buyers-best-friend.html

scott - i would get the value of the property and building(s) and if the business makes 30K a year
multiply that by 5. that should give you an idea or a place to start

I Love my business! My business is quite complicated. I own 4 corporate stores and 8 franchise stores. I own a distribution arm that sells to my stores and the franchise stores and the service trade. I also have internet sales and potential growth in commercial sales of the same products I sell to my stores. I would like to start looking at an exit stratagy. I have a 6million dollar target goal. As of now, if I were to evaluate my books my buisness should be worth 3.5-4.5m, Working on a 6x ebitda. My buisiness has quite a bit of growth potential not just in my area in Phoenix. It could easily be epanded to many different regions thruout the country via franchise networks or corporatly. My question is, What would the fastest way be to get to my target goal? Is anyone looking for an explosive opportunity? Is the best route for a buyer or myself to build 100 franchise stores or should I build corporate stores. What are your inputs thoughts?----David

Also what are peoples input on Hulihan Smith / Generational Wealth and Equity. It seems like their pricing is quite high to get the paperwork done. I have spoken to both, they both want to take me on as a client but they seem very pushy. I am in no need to sell right away, again I love what I do and it makes me alot of money, but if the right offer was on the table of course I would.I would like to know anyones input on that. I am the same person the comments above with the franchise stores. E-mail me dhagen@cactuspools.com

Can selling what can be called a "lifestyle business package" bring more than the sum of its components?

My example would be as follows:

To sell a firmly established 20-year-company, which includes a wholesale distributorship of a highly technical, sports related consumable product, coupled with a one-of-a-kind property in a prime location related to the use of those products (ie close to ski resorts, golf courses or surf sites etc.)

An example would be as follows:

The value of the business is $400,000 with value of realestate at $400,000, but the property is specifically located where that business product can be distributed from and "tested" by the company owner on a daily basis.

It seems safe to say that a selective buyer who is interested in that lifestyle might be attracted to the unique combination and be willing to pay more than $800,000.

So the following question would be; are there brokers or websights that address this concept?

Tom,

You can certainly get a price that exceeds the individual values of the business and underlying real estate. This will require a "synergistic buyer" - one that is looking to realize specific advantages, for example:

1. Combination with existing businesses.
2. Economies of scale that can be realized through acquisition.
3. Specific business and/or lifestyle goals.

One excellent method to appraise your business in this situation is Multiple of Discretionary Earnings:

http://www.valuadder.com/tour/multiple-of-discretionary-earnings.html

This well-known valuation method lets you account for both financial and lifestyle considerations when calculating what the business is worth.

Business brokers are salesmen, not valuation analysot. Brokers (salesmen) are usually not qualified to assist in determining the value of a business. Engage a qualified valuation analyst.

I beg to differ on the capability of business brokers to perform business valuation.

Experienced brokers are very well aware of the business market values in their area of practice.

In fact, most private business sale transaction data are submitted by participating business intermediaries - the professionals that price actual business sales.

Since the market if ultimately the judge of the business market value, experienced market participants can and do assess what businesses are worth.

To find qualified business intermediaries and appraisers, check out the resources at:

http://www.valuadder.com/links/business-valuation-resources.html

What about a business that relies on the relationship between one person (the president of the ccompany) and the clients. If that person is no longer there for whatever reason, the business is worthless. Is it not? No property or physical assets are involved.

Robert,

You bring up the important issue of business goodwill. There are two types in any business:

1. Personal goodwill - created by the owners or key staff:

http://www.valuadder.com/blog/2008/07/23/business-goodwill-valuation-professional-goodwill-elements/


2. Institutional goodwill - created by the business itself.

Take a look at the key factors behind it:

http://www.valuadder.com/blog/2008/07/30/valuing-business-goodwill-8-factors-create-institutional-goodwill/


The key test is whether business goodwill endures when the business sells. If so, it is transferrable and has market value.

Even personal goodwill can often be transferred to the buyer - with the assistance of the outgoing seller.

For example, you can help the new owner establish valuable client and supplier relations and professional contacts.
Busine