WHAT IS MY BUSINESS WORTH?
After 25 years in the field, consummating over 600 transactions and reviewing thousands of business operating statements, we have developed a valuation model and proprietary algorithm that reviews, calculates, compares and scores over 50 aspects of the uniqueness of a business.
What is your business worth?
How do you know? Gut feeling? Accountant’s opinion? Articles in the Local Business News? “Expert” articles?
You could pay a valuation firm $10K-$20K for the answer and it still can be as much as 50% off from the current market value!
When considering a sale, business owners typically reach out to their accountants for an opinion of value. Values vary based on the premise of the valuations, and if a sale is contemplated, the traditional business valuation methods often turn out to be inaccurate.
The leading method used by accountants is the capitalization method. However, that does not translate into the real street value of a business. Each business is unique and such valuations ignore a host of items that buyers give a great deal of consideration to when contemplating a purchase. Items like: areas to improve, franchise strength at that moment in time, reputation, business trends, future developments in the community, planning volume, UIO count, PMA, current management, the competition, growth potential, absorption rate and market size, if only to mention a few.
As you know, the industry is ever changing. Although it has been rather robust in the last couple of years, the overall economy is still maneuvering through uncharted territories and the local small to medium size businesses are of course impacted by it.
Determining the value of a business enterprise and understanding how to calculate the value of your business, especially the goodwill portion, is critical. It is a complex process and yet, a large part of it is an art, from applied experience and not an exact science!
The values of two businesses selling the same brand, showing the same sales and netting the same amount, could vastly differ for a multitude of reasons.
Unlike residential homes, there are no comparables to rely on. Multiple listing services do not exist in the industry, and even if a centralized data center existed, it should not be relied on, since each dealership is surrounded with unique circumstances.
- Does the last recession still have an impact on the value of local businesses?
- Which brands/franchises are in high demand nowadays?
- What are buyers currently looking for when searching for a business?
- How active is the buy/sell environment? What is expected in the near future?
- Do you have environmental concerns that might impact the value?
- Do your financial statements accurately reflect the condition of company? If not, would some items become an issue during an audit or in a buy/sell process?
- Does the business have the potential to do better? Is there untapped potential? Any hidden value?
- Is your facility in compliance with the franchises most recent image requirements? If not, how does it impact the value of the business?
- Are you paying fair-market rent? How does the associated real estate and the occupancy rate impact the value of your business?
And so on and so on…
If you are contemplating selling your business, wouldn’t the current market conditions influence your decision? If you are making business plans, aren’t you curious to know the value of your business? If you are selling stock to a partner or a family member, wouldn’t you want to know the current market value of your stock? Would the (realistic) value of your business influence your business plans? If so…
We can help you with all the answers that impact the value of your business. Market conditions are constantly (and quickly) changing, an array of industry-specific value drivers and other considerations influence the value of local businesses. The small business industry is a lively landscape with a host of items influencing the values. If your needs require a realistic valuation, or if you intend to sell your business, we can assist you. We can also assist with identifying items you need to handle, fix or improve now to create more value for your business in preparation for a sale.
There are several ways of determining the value of a business. Choosing the right method of valuation and properly managing the immense number of variables is really a mix of art, science and having your finger constantly on the market’s pulse. Working in the trenches daily, we do.
No single valuation method, centralized data center, comparables, set of rules or (any) rule of thumb can determine the value of your business.
Local businesses are as unique and complex as the operators who own and/or run them.
Valuing a business should only be attempted by someone familiar with business valuation principles AND with a thorough understanding of the small to medium business sector. Depending on your needs/plans, we also suggest that you hire someone who is independent and at an arm’s-length from the operation.
We are a full service and national brokerage firm with a sole focus on small and medium size businesses. As business brokers, we are in touch with the market’s pulse in connection with buy-sell activity, and are tuned into buyers’ current desirability of franchises, preferred geography and alike. Because of our high volume of business transactions, we are uniquely qualified to assess the current market value of your portfolio and often see trends forming ahead of time.
After more than 25 years in the field and reviewing thousands of business operating statements, we have developed a proprietary valuation model. Our proprietary algorithm analyzes, compares and rates 52 different aspects of the financial data and the uniqueness of the business, good and bad, to help us arrive at a value. The methodology we use is constantly calibrated to stay current with the market conditions since the auto industry is cyclical and its performance magnifies the boom-and-bust of the overall economy. Buyers’ preference for a specific brand, demographic trends, decreasing gross margins on new vehicles, a constant change in consumer preferences, pressure from the manufacturers to realign franchises and to improve facilities, if only to mention a few, impacts our methodology.
An appropriate application of several valuation approaches, identifying hidden value, along with the use of our proprietary algorithm, will result in the most accurate and current market valuation of your business.
We often hear business owners and business brokers use of rules of thumb, like a multiple of earnings, when discussing the value of a business. That is not how value is determined. Bankers don’t use it…investors don’t use it…public companies don’t use it. Is it a multiple of earnings of the last 12 months? Is it a multiple of earnings on a 3-year average? A 5-year average perhaps? And if the dealership is losing money, what is the multiple then…? Zero then?
And yet, over the years, we have sold businesses for millions of dollars that lost millions of dollars! Furthermore, each buyer will put a different value on the same business!
A value of a business is ultimately determined by (a) the likelihood of the business to maintain and/or improve sales and profits, and (2) by the buyer’s threshold and desired return on investment.
Different buyers will analyze an opportunity differently based on items like: Geography, brand, scale, synergy, market share, a tuck-in opportunity, opportunity to improve, hidden value, etc.
Please call us for a CONFIDENTIAL consultation at 423-499-9956 or email for more information or to discuss the unique situation you may find yourself in.
We welcome the opportunity to be of service.
WHAT IS MY BUSINESS WORTH?
If you would like to know the current value of your business because you are considering selling, please complete a short form, and we will be in touch soon.
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