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What is your business actually worth?
Most owners have no idea how much their business is worth. Knowing the value of your business helps you plan with loved ones and your financial advisor wealth planner.
A business valuation is an objective, independent review of your financials, operating model, and infrastructure.
Not only for a sale.
Owners need valuations and market comparables for strategic planning and forecasting, buying out or bringing in a partner, checking eligibility for a commercial loan, private wealth and estate planning, and divorce. We do a consistent volume of valuation work, and it is a cost effective way for an owner to test out an advisor or business broker before committing to partner on a business sale.
Business valuations are a fixed fee engagement. We assess the complexity of a business, # of legal entities, and any unique ownership or tax considerations before confirming the fee. When ready to begin, we e-sign a Valuation Agreement, invoice 50% of the fee, and begin. The final 50% payment is due upon completion.
Three approaches, and when each one applies.
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Market approach
Much like pricing real estate: it pulls in comparable business transactions and analyzes multiples of revenue, gross profit, EBITDA and discretionary earnings. Its accuracy depends entirely on having enough genuinely comparable transactions.
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Asset approach
Assumes a prudent buyer would pay no more than the cost of replacing the assets. Rarely used for a well-performing business, because its earnings should support a higher value than the book value of what it owns. This is the approach for a distressed restaurant.
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Income approach
A discounted cash flow: future cash flows and a terminal value, discounted back to today at the weighted average cost of capital. The most academic of the three, and highly sensitive to a handful of assumptions, which can leave it loosely connected to what the market will actually pay.
Four things beyond the numbers.
- Size
- All else equal, bigger businesses are seen as more diverse, therefore safer, and command higher multiples.
- Industry
- The size and perceived health of the sector matters. Even a strong performer in an out-of-favor industry sees a lower valuation than it would in a better cycle.
- Growth
- A track record of growth is worth more, as long as a buyer believes it is sustainable.
- Management
- Companies do not run themselves. A business with capable management in place is valued above one without.
An annual update, so the number is never a surprise.
Whether or not you have immediate plans to sell, the report is a tool for improvement. Our Valuation+ program gives owners a cost-effective annual update: the discipline of watching the number move, and the reason to keep improving the business. When the time comes, you sell for the figure you were expecting.
Watch
Valuation, explained.
Ryan walks through what happens at each stage, what we need from you, and what to expect once a buyer is at the table.
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Buyers, interest rates & your business
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5 things we do before taking your business to market
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Our top 2 tips for every owner
Valuation questions
What owners ask about valuations.
Including the one about the broker who quoted a much bigger number.
Seller FAQ'sWhat is a business valuation? Is that the price my business will sell for?
The valuation report calculates the weighted cash flow over the last three to five years, incorporating various factors to determine a suitable multiplier, and arrives at a fair market value. It offers an independent opinion to help you present the business for sale. It determines the price at which the business would transfer from a willing and knowledgeable buyer to a willing and knowledgeable seller.
Is a valuation really necessary for all businesses?
A valuation may not be useful if your business is less than two years old or lacks a well-maintained bookkeeping system. But if you are committed to robust bookkeeping and focused on improving the business, a valuation report becomes exceptionally valuable. You receive a price range you can anticipate in the marketplace, which boosts a buyer's confidence and streamlines due diligence.
What are the key benefits of an updated valuation when marketing my business?
Every business has its own issues, and the best way to bring them to the surface is a deep analysis. Some are minor and can be corrected immediately; others can be worked on over time; a few are not fixable but a credible explanation can be given. The goal is to surface the good, the bad and the ugly so all material facts are disclosed. Most deals fall apart during due diligence. As a seller, you would rather the buyer had full information before the purchase agreement than have to explain it afterwards.
Do you accept third-party valuations when listing a business?
Yes, as long as the valuation report is up to date and credible.
Another broker told me my business is worth far more than your figure. Why?
Some operators use unsolicited telephone marketing or seminar invitations to reach business owners, then apply pressure to persuade them the business is worth a great deal, in order to justify a large upfront fee. In those cases the inflated valuation is a pretext for the charge, and there is often no real intention of selling the business. We charge no upfront fee, so we have no incentive to quote you a number we cannot deliver.
Request a Valuation
There is no upfront fee and no obligation. Tell us a little about the business and we will come back to you.
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