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.
COVERING PERIOD FROM 1/1/2016 TO 12/31/2016
|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|
|Legal & Acct.||231,409||6.35||-210,000||(01)||21,409||.59|
|Licenses & Taxes||18,090||.50||0||18,090||.50|
|Rep. & Maint.||52,785||1.45||-52,785||(04)||0||.00|
|Travel & Ent.||151,087||4.15||-151,087||(05)||0||.00|
|Meals & Entert.||42,570||1.17||-42,570||(06)||0||.00|
|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|
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