Business Valuations

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buying or selling a business.

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Expert Business Valuations

Understanding the worth of your business is just as important as knowing your personal credit score or having a will drawn up. It offers numerous benefits, including comparing its current value to the previous year, identifying strengths and areas for improvement, calculating revenue per employee, qualifying for bank loans or financing, planning for the future and retirement, and creating a succession plan.

Imagine someone approaching you with an offer to buy your business – wouldn’t you want to know if the price is fair or even too good to refuse? Getting a professional valuation of your business is one of the wisest investments any owner can make. Valuations serve various purposes like in divorce proceedings, for bank loans, employee stock option purchases, or liquidation. However, if you’re looking to know the fair market value for selling your business, we offer low-priced valuations.

In fact, for every business we list for sale, we generate a Valuation Report before putting it on the market. This benefits both the seller, as it provides insights into the business’s value, and the buyer, as it helps them understand the reasons behind the asking price, making the entire process more transparent and reasonable.


How, Why, and What We Do to Value Your Business

Business owners need valuations and market comparables for a variety of reasons beyond selling their business, including for strategic planning and forecasting, buying out or bringing in a partner, to review eligibility for a commercial loan, private wealth & estate planning, divorce, etc.

We do a consistent volume of valuation preparation, advisory, and review for business owners. In fact, this is a great way for a business owner to “test out” a Business Broker.

There are three primary valuation approaches:

Market Approach
Similar to pricing / valuing real estate, this approach pulls in business transaction comparables and analyzes multiples of revenue, gross profit, EBITDA, discretionary earnings, and other financial metrics. Accuracy here depends on incorporating enough comparison transactions that are applicable to the business being assessed.

Asset Approach
Based on the assumption that a conservative / prudent buyer would pay no more than the value at which the business assets could be replaced or reproduced. This approach is rarely used for well-performing businesses, as the earnings that those businesses generate should support a higher valuation than the book value of the underlying assets. When I walk through these approaches with business owners I describe this approach as being applicable to a distressed restaurant.

Income Approach
Often referred to as a discounted cash flow (DCF) analysis, this approach converts anticipated economic benefits into a business value. The most academic of the approaches, a DCF model takes the future cash flow streams (along with a terminal value) of a business and discounts them back to the present using their weighted average cost of capital. This model is highly dependent on a handful of assumptions, like the projected cash flows,  terminal value, and discount rate, and may have a limited or little connection to real-world market valuations.

In addition to these approaches, Axial calls out several qualitative factors:

  • Size: All other factors being equal, bigger businesses
    are seen as more diverse, and therefore safer, and thus command higher valuation multiples
  • Industry: The size and perceived health of the target’s industry is also an important factor. Even rock stars in out-of-favor industries will see lower valuations than when their industry outlook is more favorable
  • Growth: Businesses that have a track record of higher growth are more valuable, as long as that growth is believed to be sustainable into the future
  • Management: Companies do not run themselves, and so those with exceptional management at the helm receive higher valuations than those with lackluster management teams

Whether you have immediate plans to sell your business or not, understanding its worth and utilizing the Valuation Report as a tool for improvement is a wise approach. Our Valuation+ program offers Business Owners an annual, cost-effective update on their Valuation, providing the necessary discipline to continually enhance the value of their business. By staying informed and proactive, they can confidently sell their business for the expected price when the time comes.

Frequently Asked Questions

Explore our comprehensive FAQ section to find clear, expert insights into the business valuation process. We've got you covered!

A Valuation for selling your business may not be useful if your business is less than two years old or lacks a well-maintained bookkeeping system. However, if you are dedicated to robust bookkeeping practices and focused on improving your business, a Valuation report becomes exceptionally valuable. Through a formal valuation, you will receive a price range that you can anticipate in the marketplace, significantly boosting a buyer’s confidence in purchasing your business and streamlining the due diligence process.

  • Each business is unique and has its unique ‘issues”. The best way to bring these issues to surface is to do a deep analysis of the business. There is no better way than a Valuation Report to accomplish this, because the worth of the business is based on the numbers and internal factors unique to your business. Some of the issues may be minor problems that can be corrected immediately, and others can be worked upon and fixed over time. Yet some may not be fixable but a credible explanation can be derived. The goal here is to bring out the ‘good, bad and the ugly’ so all material facts are disclosed and used to ascertain a ‘fair market value’ for the business.
  • Valuations are done taking into account the past three years of financials, and lays down the narrative so the prospective buyer can base his/her decision on the strengths, weaknesses, and trend of the business performance. Most deals fall apart during due diligence. As a seller you rather the Buyer has full information on the facts prior to the Asset Purchase Agreement being in place, instead of having to explain it during due-diligence and give the Buyer cause for concern.
  • Most small businesses have non-business (personal, tax related accounting) expenses in the financial statements. By adding them back and reconciling the differences with the Tax Returns backs the owner’s claim of the “Seller’s Discretionary Income (SDE) in a plausible manner.
  • If the books match the Tax Returns, the likelihood of qualifying for a SBA loan increases, thus increasing the probability of selling the business in a short period.

The Valuation Report meticulously calculates the weighted Cash Flow over the last 3-5 years, incorporating various factors to determine a suitable multiplier, resulting in a ‘fair market value.’ This valuation serves the sole purpose of offering an independent opinion to assist the business owner in presenting the subject 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.

Yes, as long as the Valuation report is up to date and is credible.

Numerous questionable “brokers” or ‘Valuation Experts’ resort to unsolicited Telephone Marketing or seminar invitations to lure unsuspecting business owners. They exert pressure, persuading you that your business is worth a substantial amount, aiming to justify exorbitant upfront fees. However, in both scenarios, the inflated valuation merely serves as a pretext for the high charges. In the first case, the deceptive Broker resorts to high-pressure tactics to coax you into making the payment but has no intention of actually selling the business and fails to fulfill their promises with any real action.

Absolutely. In fact we encourage you to get an annual report from us. Our goal is to build up a long term relationship with local businesses like yours so when it comes time to put your business on the market, you will give us the opportunity to sell a business that has good books and a track record. Upon the sale of the business we will gladly deduct from our commissions, all Valuation fees that you have paid us over the years.

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We welcome the opportunity to connect with any business owner who is thinking about buying or selling a business.