Chinook Business Brokers is a full service Business Brokerage offering businesses for sale on Vancouver Island. We specialize in valuating, marketing, listing and selling existing business opportunities, new business opportunities, and franchise opportunities. Chinook Business Brokers provides comprehensive personal support to our clients through every stage of the transaction. From the initial business valuation, through the due diligence process, to signing the final documents, Chinook Business Brokers offers guidance every step of the way.
What is my Business Worth?
The most important question for any prospective Seller is “What is my Business Worth?”
The answers to that question are surprisingly complicated. The value of a business depends on many factors both internal and external.
Some internal factors include profitability, gross sales, industry attractiveness, ease of ownership, whether the business is in growth mode or in decline, quality of customers, existing management strength, and a myriad of other factors.
External factors that may impact the value of a business can include the strength of the local or regional economy, projections for global economy, commodity prices, the number of other similar businesses on the market, credit availability and a host of other reasons.
There are a number of ways to value a business, the most common are listed below:
Market Comparables – If there is enough information available, a business can be valued based on what similar businesses have sold for recently. There are generally too few similar transactions in a given area for this model to be employed effectively.
Discounted Cash Flow – this valuation model estimates risk factors involved with investing in a new business balanced against the projected returns the business will provide a new owner.
Multiple of Earnings – very familiar valuation model that values a business based on a multiple of adjusted earnings. Earnings are almost always normalized with Interest Payments, Taxes (EBIT) and Depreciation and Amortization (EBITDA) the most commonly used multiples. Smaller businesses uses multiples of Seller’s Discretionary Earnings to calculate an enterprise value.
Multiple of Revenue – commonly used to value businesses in established service sectors such as restaurants, print shops, and consulting firms.
Book Value – Assets – minus liabilities from current financial statements equals book value.
Liquidation Value – Liquidation Value is an estimate of what the assets of an underperforming or failing business can be sold for quickly in order to satisfy creditors.
Rules of Thumb – although not commonly used to finalize a sale price of a business, rules of thumb are useful reality checks. See here for some common rules of thumb for business types.
There is a saying in the venture capital industry that “the value of a business is only what someone is willing to pay for it.” In other words, the market, and your ability to attract investors and negotiate with them will determine the value or selling price. With the help of Chinook Business Brokers, you can rest assured that your business will be visible to the highest number of potential investors.