What is My Business Worth?
Every business owner wonders what their business is worth. VR Business Brokers of Charlotte has correctly valued hundreds of businesses since 1979. Contact us for a no obligation estimate of the value of your business.
When you work with a VR business intermediary to develop a broker opinion of value, the goal is a simple one– the creation of an accurate and comprehensive document that will stand up during the sales process. Without a professional valuation, a business owner rarely has an accurate knowledge of the market value of their business listing. VR Business Brokers of Charlotte’s depth of experience coupled with a vast access to previous business sale databases will result in a broker opinion of value, delivered in a responsive, timely and efficient manner.
Small and mid-sized businesses typically depend on four key value factors:
- Seller’s Discretionary Earnings (SDE)
- Terms of the Sale
To estimate the value of your business, we will consider all of these factors, the selling prices of comparable businesses, as well as any other factors unique to your particular business that may make it more valuable. Contact VR Business Brokers of Charlotte for a no-obligation estimate.
The primary factor in determining the value for small and mid-sized businesses is the total cash flow benefiting the owner– also known as Seller’s Discretionary Earnings (SDE). SDE is calculated using the following six categories:
- Profit or Loss as Reported
- Owner’s Salary
- Discretionary Expenses
- Non-recurring Expenses
- Non-cash Expenses Including Depreciation and Amortization
Once these categories are added together, and an SDE is developed, a multiplier is applied. The multiplier can range from 1 to 5 (or more), depending on many factors, to arrive at the appropriate value for the business.
The second valuation factor is the level of risk. Factors in this category include:
- Years in business and with the current owner
- Profit trend
- Quality of books and records
- Franchise membership
- Brand recognition/strength
- Level of competition
- Dependence on current owner
- Diversification of customer base
- Lease length and terms
- Asset value
This is the one source of value that the business seller can almost completely control. Components of the terms include:
- Down payment
- Interest rate
- Monthly payment
- Non-compete agreement
- Seller training of buyer
The majority of sales include the seller to provide some level of financing to the buyer of the business. With seller financing, the seller receives part of the purchase price at the time of the sale (“the down payment”) and the remainder over several years. The buyer uses the cash flow from the business to pay off the debt. Structuring a sale with attractive terms can significantly increase the value of a business.
Certain businesses are valued at higher multiples of the seller’s discretionary earnings while other businesses only bring a low multiple. An important reason in determining the multiple of SDE is the industry of the business. Specific industries are more desirable than others. Factors influencing desirability include:
- The fun and ease of operating the business
- Employee relations
- Operating hours
- Growth potential
When Is the Right Time to Sell?
Schedule a confidential appointment with VR Business Brokers of Charlotte for help developing your exit strategy, preparing your business for sale and closing a deal.