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 |
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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