A short video on a simple way to determine the value of a business.
Hi, I’m here on the bay front in beautiful St. Augustine, Fl. I’m a “business broker” and I work with buyers from all over the world to help them find the business that’s just right for them and I work with business owners to help them find an ideal buyer for their business.
Today I want to talk with you about how we can work together to find the fair market “value of your business” in today’s market.
When I talk with business owners I often ask, have you ever thought about “selling your business” and it’s interesting how often I get same response and that is, “I think about it every day.” Perhaps you’ve thought about selling your business, either to retire, to relocate or to take on an entirely new challenge.
I can’t help you decide when the time is right for you to sell your business, but we work together to determine the approximate “value of your business” in today’s marketplace. And that basically comes down to three very simple factors: the nature of your business, the annual revenues of your business and seller’s discretionary earnings. If I lost you on that last point — seller’s discretionary earnings — don’t despair We’re going to walk through an example to show you exactly how those are determined.
Seller’s discretionary earnings sounds like a complicated term, in fact some brokers use the term adjusted net, some use SDE, I prefer the term owner benefits. It really refers to the net profit of loss of a business with certain add backs, such as amortization, depreciation, compensation to the owner, a health insurance plan, a car payment even a cell phone payment. Any expenses that are a benefit to you as an owner are added back to determine total owner benefits. The easiest way to determine the value of your business is to compare it to other similar businesses that have sold. It’s very similar to what a residential real estate agent might do in preparing comps if you decided to sell your home.
When we talk about comparing your business to other similar businesses that have sold I use information from the database of the Business Brokers of Florida. We have information on thousands of “business sales.” For instance if we look in our database for information on pizza stores that have sold I can do a search and I find 241 pizza stores that have sold in Florida. And I can sort this information by the sold price, the annual revenues or by the owner benefits. And that way I can narrow the results to closely mirror those of your business.
Okay, let’s walk through an example of how we determine an approximate value in today’s market. We work with tax returns, profit and loss statements and other financial records. Tax returns are the highest and best evidence and I know you’ll find this shocking, but not all business owners report all income on their tax returns. But, for an example, let’s say you have a pizza shop with $500,000 in annual revenue.
Let’s say that this pizzeria had a tax return profit of $30,000, but that doesn’t represent the total owner benefits. …..
Must Read Articles 