Business Brokers and Advisors

Considerations When Performing a Business Valuation

By on Jul 31, 2017 in Business Valuation, News | 0 comments

Considerations in Determining Value

There are many things that go into valuing a business. We like to say that the endeavor of business valuation is “part science and part art”. The science is usually a fairly objective pursuit involving crunching numbers and cash flow multiples etc. Whereas, the “art” part is often a partially subjective endeavor where experience, opinion, and the “eye of the beholder” comes into play. With that being said, here is a short list of items that we take into consideration when performing a business valuation.

· Seller’s discretionary earnings (SDE)/cash flow: Sum of the benefits that the business accrues to the owner(s). (Net income + owner’s compensation + fringe benefits etc.)

· Market Value of tangible assets: furniture, fixture, & equipment

· Value of intangible assets: reputation, goodwill, copyright, IT, etc.

· Comparable sales: What are buyers/investors paying for this type of income stream? What multiple of SDE are businesses like this being transacted at?

· Replacement value: What would it cost to replace the income producing capability of the enterprise?

· Marketability factor: How desirable is the business? Is it catering to a “hot” demographic?

· Market segment: Business to business? Business to consumer?

· Territory rights: Exclusivity? Competitive environment?

· Do you know how buyers will value your business?

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