Valuation
What exactly is value? Value is the utility, worth or desirability of an asset, right or privilege. Value is typically determined by the cash flow that the business generates. A business is basically a group of assets, people, ideas, products, processes and equipment that produces the cash flow, income stream or profit for the owner or owners.Business valuation at its core is assigning a dollar value to a business by estimating what someone would be willing to pay to acquire those ownership rights and interests.
Valuation is not exact but rather subjective, value is to some degree in the eyes of the beholder. Value to an individual, company or investment group is different, It's the price that someone is willing to pay to acquire those ownership rights and interests. But there are also formulas, methods, approaches and ratios to objectively determine business value and estimate worth; marketability, fair market value, risk, comparative sales method, income method, and asset approach, along with many other value drivers.
Quick and simple basic rules of thumb for valuation are as follows:
- Historical financial performance assumes, the future will reflect the past or the past will predict the future
- Businesses sell for 50% of revenue
- Businesses sell for 2.4 of earnings multiple
- Businesses sell with 50% down payment
- 70% of businesses sold, finance 50% of the balance
- 50% of the balance financed is amortized 3 - 5 years
- Average sales price is 10% below the asking price
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Why use the services of a professional business broker?
Many business owners think a business broker is an unnecessary expense. Unfortunately, this decision can be a very costly one for the owner. The sale of your business demands a professional just as running your business demands a professional.
Marketing and completing a business ownership transfer can take many hours, if not months and much effort to oversee. A business owners time is already fully utilized to managing and maintaining operations, so trying to sell your business on your own will certainly pull your focus from your daily business demands and may actually cause it's value to decline. You need to stay focused on managing and developing your business as an attractive opportunity.
Research shows that owners who represent themselves in the sale of their business are highly likely to:
- Make multiple mistakes due to lack of knowledge
- Waste time, energy and money
- Receive a lower sales price
- Experience a much longer marketing time
- Incur higher attorney’s fees
- Overall have a frustrating experience dealing with potential buyers and managing the process
So let Trinity Business Brokers represent you in the sale of your business. Utilizing our experience as competent and professional business brokers to market and maximize your business exposure to serious qualified buyers, all while maintaining total confidentiality.
Remember - you cannot buy experience, you can only utilize it.
Contact us today for a free, no obligation consultation.