Top Three Methods for Determining Value of a Florida Business for Sale

Truforte Business Group - Brokers Blog

Florida Business Brokers use a number of different methods for determining the value of a Florida business for sale.  Although most Florida Business Brokers are not certified business appraisers, many can provide an “opinion of value” which will use the same basic principles and guidelines as a certified business appraiser. Statistics show that many businesses for sale in Florida never actually end up selling for the price they were listed at and this is most often due to the business being overpriced to begin with. Understanding business valuations and getting an opinion of value from of Florida Business Broker is always a great first step to selling a Florida Business. Often times there can be a confusion in the valuation methods because multiples get applied to the wrong numbers or the valuation method is not fully understood.

Industry Method

The industry method calculation varies according to a particular industry but most commonly uses a straight percentage of the sales or gross revenue. This could range anyway from 15% to 100% depending on the industry and it is usually advisable to consult with a Florida Business Broker to determine where a particular industry might fall. With the exception of some professional practices or businesses with a large amount of re-occurring revenue most business will be well below 50%.

Income/Asset Method

The income/asset method takes into consideration both the income and assets of the business. Income is often stated as discretionary earnings, owner benefit or for larger corporations as EBITDA.  A multiple is usually then applied to this number based on the industry, the amount of the earnings, or the size of the business. The assets are typically valued at a fair market value taking into account any added costs to put them in place and into use. A Florida Business Broker will almost always need to apply some subjectivity when using this method for a pricing a Florida business for sale.

Comparable Sales Approach

The comparable sales approach which is most commonly used with the sale of residential or commercial real estate is also a great way to value a Florida business. Since the selling prices of businesses are not publicly recorded this information can be a little more difficult to obtain.  Florida Business Brokers will usually have access to data for what particular business have recently sold for and in which industries they have been sold. This information becomes invaluable when pricing a Florida business for sale, because it takes into account what the market is doing and what businesses are actually selling for. Although these are the top methods for determining the value of a Florida business for sale there are others that can be used as well. The income capitalization method is more commonly used in valuing income producing real estate but can also be used for valuing businesses. The excess earning methods takes into account a number of different factors and although it has been suggested by the IRS as the least desirable method and to only use it if there is no better method, it can still be another option. Using certified business valuators is still the preferred method if acquisition financing is being obtained through an SBA lender. Getting a certified business appraisal can be a little costly so using a Florida Business Broker for an “opinion of value” can often be a more economical way to determine the value of a Florida Business for sale.

Learn more about why valuation is important during a company acquisition.

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