Business Valuations

What Is Your Business Worth?

For most business owners who are considering selling their business the biggest and most often asked question has to be:
“What is my business worth?”

What it owns

A business has tangible and intangible assets. The tangible assets include furniture, fixtures, equipment, inventory, and real estate. The intangible assets can include the trade name, contracts, leases, client lists, licenses, recipes, and patents.

What it earns

A business provides a certain financial benefit to the owner. The benefit generally comes in the form of business profits and a salary to the owner. It can also provide the owner with fringe benefits such as health insurance, a company car, or a retirement plan.

The Benefit of a Valuation

Business valuation is as much an art as a science. While the business valuators do employ standardized formulas and methods to calculate value, they work from assumptions that are based on experience in the market place and familiarity with similar businesses. This process includes the selection of the most appropriate risk and return variables. In this way, their applied expertise leads to the best calculations of value for a specific business.

The best way to get to find out the value of your business is to set up an appointment with a Business Broker at Truforte Business Group. Although a Business Broker is not typically a certified business appraiser, we certainly have the knowledge and are familiar enough with market conditions to provide an “opinion of value” which will give a business owner some reasonable expectations as to what their business might be worth and what the right asking price might be. For those interested in selling their business Truforte Business Group is happy to offer a Free no obligation evaluation or “opinion of value” at no charge. For those who are just curious or may want a valuation done for other purposes* we can offer an “opinion of value” for a small fee, depending on the complexity of the valuation.

Rules of Thumb

Most industries have one or more rules of thumb. However, they can vary widely and in most cases do not give an accurate value of a business. Since each business is unique, a particular rule of thumb can be off by as much as 100% or more. The business valuator will be able to decide what the most relevant information about a business is and then make an informed decision about its value.

How Value is Calculated

Owner-operated businesses with sales of $1 million or less generally sells for the value of the assets, plus one to three times the earnings. If the earnings are stable and growing, the value is on the higher end. If the earnings are variable, or declining, the value is on the lower end.

Businesses with sales of $1 million to $10 million may sell for straight earnings multiples of two to four. A thorough investigation of the financial information is required to uncover the true earnings capability of the business. Again, if the earnings are stable and growing, a higher multiple is used. If the earnings are variable, or declining, a lower multiple is used.

Businesses with sales of more than $10 million often have specific industry criteria, which may be applied to determine the value. At this level, Buyers may be paying for market share, rights to patents and processes, additions to product lines, or the benefits of strategic or administrative consolidation.