Selling your business? You need a Business Valuation

 Your business won’t sell without your broker conducting a business valuation.

The Business Valuation determines the true profits of the business which creates the selling price.  A business valuation can increase the selling price by 3x. To illustrate the critical importance of a proper business valuation – see the example below

The numbers are extracted from the company tax return, the adjustment column numbers are the personal expenses of the owner which are treated as non-reoccuring business expenses and therefore are ADDED back to the profits declared on the tax return.

BUSINESS VALUATION

COVERING PERIOD FROM 1/1/2016 TO 12/31/2016

Tax Return Adjustment* Actual
——- ——— ——
Gross Sales 3,643,404 100.00 0 3,643,404 100.00
Other Income 0 .00 0 0 .00
——– ——– ———-
Total Income 3,643,404 100.00 0 3,643,404 100.00
—– ——— ——-
Opening Inv. 0 .00 0 0 .00
Purchases 1,836,436 50.40 0 1,836,436 .00
Labor 0 .00 0 0 .00
All Other Costs 455,010 12.49 0 455,010 12.49
Less Ending Inv. 130,000 3.57 0 130,000 3.57
—– ——–
Cost of Sales 2,161,446 59.32 0 2,161,446 59.32
Gross Profit 1,481,958 40.68 0 1,481,958 40.68
——— ——— ——-
Expenses
Insurance 3,584 .10 0 3,584 .10
Legal & Acct. 231,409 6.35 -210,000 (01) 21,409 .59
Licenses & Taxes 18,090 .50 0 18,090 .50
Office Supplies 173,899 4.77 -143,000 (02) 30,899 .85
PayroD Officers 285,000 7.82 -285,000 (03) 0 .00
Postage 1,325 .04 0 1,325 .04
Rent 24,253 .67 0 24,253 .67
Rep. & Maint. 52,785 1.45 -52,785 (04) 0 .00
Telephone 2,540 .07 0 2,540 .07
Travel & Ent. 151,087 4.15 -151,087 (05) 0 .00
Meals & Entert. 42,570 1.17 -42,570 (06) 0 .00
——– ——– ——–
Total Expenses 986,542 27.08 -884,442 102,100 2.80
Net to Owner 495,416 13.60 884,442 1,379,858  37.87
*Explanation for Adjustments
01 – One Time Occurrence Patents
02 – Other product cost
03 – Personal
  04 – Leasehold lmprovements
 05 – Personal
 06 – Personal

Important Note

A Business valuation determines the True Profit of the business. You cannot Price or Sell your business without a Business Valuation. Businesses are sold on multiples of profit made by the business and reported on a tax return. Most businesses sell for an average of a 2x multiple. In this example, the business declared a profit of $495,416. Using a 2x multiple the selling price would be about $1M. BUT after a thorough business valuation, the true profit of the company became $1,379,858, which would equal a selling price increase from $1M to $2.8M at a 2x multiple. True Profit is only determined when non-reoccurring expenses to a new owner are added back to the profit declared on the tax return.. This is an excepted accounting method for determining the true profit a company makes. This example clearly shows how important a solid business valuation is. It is critical to getting the highest price for your business. The example above shows that without a valuation the owner would get $1.8M less for the business There is no easy/quick way to properly valuate a business.

Business valuation companies charge up to $2500 for businesses selling for under $3M.  It can easily take 4-8 hours to complete a business valuation. I will do it for free if I am your broker.

If you would like to proceed with a Business Valuation on your business – contact me:

  • Call me at 727-946-1183
  • Use the Contact page to sent me a message