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mlwhite79
12-06-2013, 03:12 PM
Hey guys! Does anybody have experience or a preference for a valuation tool that could help me understand what a business is worth? Thanks. :)

nealrm
12-06-2013, 03:44 PM
There is not one specific value. A base value would be the sum of all the assets. Other would be the profit divided by an expect rate of return. A company generating a profit of $100,000 would be worth $1,000,000 with a ROI of 10% or $670,000 with a RIO of 15%.

Fulcrum
12-07-2013, 05:23 PM
I've found, for the most part, that business valuation is based more upon using multiple "rules of thumb" (free cash flow, gross sales x a multiplier, value of hard assets + intangible assets, etc.) This is, of course, speaking strictly of privately owned businesses and not a publicly traded one. Depending on what sector you are (looking) in, value will change drastically. Also, value is in the eye of the beholder.

I bought my business based upon $65K in gross sales with 80% margins before taking an owner's salary. One of the biggest metrics I used was to see if I would recover all my down payment cash within the first 12 months (minimal salary for myself not included) either in money, debt reduction, or infrastructure improvements.

Assuming that you are looking to buy a business (please correct me if I'm wrong), don't even think of starting to negotiate a price until you have determined the following:
1) Why is the seller selling?
2) Why is he selling now?
3) How much is he looking to get? (not negotiating at this time, you just need a number for a starting point)
4) Would he be willing to finance some of the purchase price?
5) Is there any real estate included in the sale?

If the answers to these questions are adequate, than ask for documentation:
1) Tax returns and bank/credit card statements for the last 3 years.
2) Balance sheets, cash flow statements, and P&L statements for the last 3 years if available.
3) Lists of all FF&E and intangible assets that would be transferred with their approximate value in an open market.

Once you get all that information (call your dentist to find out how to pull teeth as this can be tough), it's up to you to go through it and validate as much as you can. Recast the financial statements to include a "market dictated reasonable salary", as well as to add back any expenses that may appear to be "frivolous" (wages to the seller's children for an unnecessary position). After that, determine what the business is worth to YOU based upon YOUR goals and expectations.

Nealrm's ROI calculation is only one step of probably 7 or more to determine what the perceived value of the business is. The actual transactional value will be whatever you and the seller would agree upon.

Again, I'm assuming that you're looking to buy a business and not sell one. I hope this helps.

Harold Mansfield
12-10-2013, 12:56 PM
And then there's what someone is willing to pay for it.

I've seen people buy bars that were losing money just for the location. We've all seen companies buy tech companies that have never turned a profit for obscene amounts because of future expectations or marketshare. Google purchased Motorola for some of the patents. Microsoft purchased companies just to keep them out of the marketplace.

Even after you do all of the on paper evaluations, there are some things that can't be measured by existing numbers and have everything to do with potential or leverage in the market.

Freelancier
12-10-2013, 01:37 PM
Google purchased Motorola for some of the patents

And their device manufacturing and marketing experience.

mlwhite79
12-10-2013, 04:09 PM
Are any of you familiar with a website or something that could help? I'm looking for a tool online that could do some of this for me.

Freelancier
12-10-2013, 04:27 PM
What makes you think there's a web site for something that has so many intangible and subjective points?

Your best bet is to hire a firm to do the valuation for you. They'll give you all the possible valuations based on asset value, book value, etc. Then you can ignore all that and overpay anyway, since that's what many businesses do.

mlwhite79
12-18-2013, 06:02 PM
I'm sure valuation firms do a fantastic job at what they do. But right now, I'm just seeking an alternative that could give me a ballpark estimate. If anybody knows of a good online tool that could help me out, that'd be great. Any ideas?

Fulcrum
12-19-2013, 06:36 PM
I'm sure valuation firms do a fantastic job at what they do. But right now, I'm just seeking an alternative that could give me a ballpark estimate. If anybody knows of a good online tool that could help me out, that'd be great. Any ideas?

There is no magic box that will give you the value of a company. You can either hire an appraisal firm or work out your own estimate based upon what information you have available.

Sean_DeSilva
12-20-2013, 06:09 PM
Valuation is heavily dependent on the industry and the buyer. As a rough rule of thumb, first figure out your seller discretionary income, which is your net profit plus bonuses and perks. for most small businesses an earnings multiplier of around 3 to 4 will take you to your sales price. But this is for buyers to buy based on financials – a strategic buyer like Google or some other tech company might pay 10 or 20 times earnings or even more based on their own formula.

mlwhite79
12-22-2013, 11:44 PM
Thanks, but I don't need to know the formulas or variables nor do I need a professional at this stage. Does anyone have experience with a website that can provide a ball park estimate -- sort of like comps within an MLS?

Fulcrum
12-24-2013, 10:22 AM
Thanks, but I don't need to know the formulas or variables nor do I need a professional at this stage. Does anyone have experience with a website that can provide a ball park estimate -- sort of like comps within an MLS?

I guess you missed my second post in this thread. What you are looking for does not exist. There are too many variables that can cause a misleading valuation. You need to stop trying to use shortcuts and learn how to do it properly, otherwise you will just be wasting the only asset you cannot get back - your time.

Freelancier
12-24-2013, 06:45 PM
I'm not sure whether he's missing it or just not believing what we're telling him.

consultk1
01-14-2014, 10:26 AM
Hi

Ask your accountant to generate the latest balance sheet for you. Add up the equity and retained earnings. This would give you a good base valuation for your business.

To my knowledge, there is no ready made tool for ascertaining the value of your business.

TheValueGuy
01-14-2014, 09:27 PM
It sounds like you are looking for something that can give you ballpark estimate for similar businesses in your area?

There are a few sites to consider, like Valusource for small business at valusource.com/Products/BusinessStakeholders.aspx

Their service isn’t necessarily a legally binding valuation but it may be what you are looking for. A lot of the pros use their higher end stuff, but this is affordable and should work.

phanio
01-22-2014, 07:49 AM
There is no single tool or website that can get you to the value. Someone said use asset value - but, you have to determine if that is book value or market value of those assets. You can complete a capital budgeting exercise which is as individual as your business is. You can multiples of EBITDA is you can find a good multiple.

Or, what does your gut tell you that your business is worth. Truly, you will never know the value of your company until someone else buys it -- then, it is the value that it is bought for.

If we could know why you need a value - might be able to point you in a better direction.

mlwhite79
02-05-2014, 09:19 PM
It sounds like you are looking for something that can give you ballpark estimate for similar businesses in your area?

There are a few sites to consider, like Valusource for small business at valusource.com/Products/BusinessStakeholders.aspx

Their service isn’t necessarily a legally binding valuation but it may be what you are looking for. A lot of the pros use their higher end stuff, but this is affordable and should work.

Thanks for the responses. Does anybody have experience with this kind of service?

MattSmith
02-23-2014, 02:50 PM
Sounds like your just the guy to start up this kind of a service. :)

jp7
08-19-2014, 04:45 PM
There is really no online tool to help you. That needs to be dropped if you want to get anywhere. Every business is different. There are so many people playing so many different games in whatever business that they might be that sometimes even the tax returns might tell a whole different story than what might really be going on. I recently bought a business and here are some of the steps I went through:

1. How much do they gross?
2. How much do they net?
3. What are all the expenses you can think of?
4. Does it come with tangible assets or intangible/ both?
5. How much can you pay?
6. How much do you want to pay?

Answer those questions and at least it will give you the motivation to answer all of the questions that make these look like simple arithmetic compared to calculus... or you will know not to buy the business. Freelancier is right, people pay way more for business's than they should usually because they can't let go of the idea and move on. Being a good business man is being able to adapt to what comes your way and turn a profit on it. That's coming from a very non-money hungry person.

If you want a ball park estimate look at how much they gross a year, add to that all of what their assets are worth then times it by 2. Might give you a ball park. Then again, it might not. I wish you the best of luck.

Paul
08-19-2014, 08:18 PM
Tell us what kind of business you are looking to value and some of the basic financial info. We can all take a shot at it!

dancarthy
08-27-2014, 03:33 AM
The task of working out a realistic business value is a complex and sometimes very confusing process. This is why you need expert advice and guidance at this stage. Just go to your accountant for advice or ask around for a trustworthy firm.

dancarthy
08-27-2014, 03:36 AM
But if you want to do it yourself you should find some free valuation calculators online first.

user2837
08-30-2014, 12:53 AM
Try finding a business broker. Maybe do some research online for business brokers with websites that have online analysis tools you could use for something rough.

WhoDoesSBAloans
08-31-2014, 02:06 PM
I don't know what type of business you're looking to acquire, but I've been specializing in gas station financing for sixteen years and we typically go by a 2.5X gross profit as a multiplier for an approximate value (this is with real estate) We might make our multiplier higher in a nicer location and less in a less desirable location. We also use software where we can plug in numbers and come up with approximate value based on cash flow. I would imagine that this exists for most industry and business types. Good luck.

smallbizfinancier
01-08-2015, 06:03 PM
Depending on how big the business is, there are many avenues to attain a valuation: there are law firms that specialize and investment banks, both boutique and commercial that offer this service too. Call Quiktrak.com and ask if they can point you in the right direction. They offer a variety of business inspections and could probably point you in the right direction if your business is <$10MM in revenue/annually.

pareena
01-20-2015, 06:03 AM
Once you get all that information (call your dentist to find out how to pull teeth as this can be tough), it's up to you to go through it and validate as much as you can. Recast the financial statements to include a "market dictated reasonable salary", as well as to add back any expenses that may appear to be "frivolous" (wages to the seller's children for an unnecessary position). After that, determine what the business is worth to YOU based upon YOUR goals and expectations.