Business Value Opinions

Business Book Value v Market Value

Most business owners are aware of their Business Book Value. Many also tract metrics from their balance sheet to keep a finger on the pulse of the business.

The Market Value of a business includes some balance sheet items but is based on a process called recasting the financials or normalizing the financials.

You may have heard of SDE or Cash Flow when looking at businesses for sale. SDE stands for seller’s discretionary earnings which is the actual cash flow that a business generates.

Think of SDE as the owners benefits from the business. They include salary, retirement plans, insurance (both life and medical), auto and expenses that the owner bills to the business at their discretion that may not be necessary to operate the business.

Recasting considers these items as “Add-Backs” meaning they can be added back to the net reported income from the business to determine cash flow for a new owner who would be replacing the existing owner.

The SDE becomes the basis for the most important part of a business valuation or business market valuation. Part of the formula includes multiplying this figure by the average multiplier from comparable businesses that have been sold.

Other items that can be added in some industries are inventory at cost and FFE (furniture, fixtures and equipment) replace value in similar condition. This is not the figure on the balance sheet before or after depreciation. Depending on the equipment this figure can be found by searching eBay for similar equipment in similar condition or consulting with an equipment appraiser.

Market Valuation Opinions are a good place to start when considering plans that may impact the value of your business. This can include exit planning, strategic acquisitions or obtaining financing to execute a growth plan.

If you are interested in knowing more about the market value of your business, contact AEGIS Business Valuations  479.689.4455 Ext 11  

About the Author: Richard Roberts is the Managing Broker at AEGIS Business Brokers, LLC
He is an active member of the IBBA International Business Brokers Association where he holds their top rating of CBI Certified Business Intermediary and the ABBA American Business Broker Association where he received his ABI Accredited Business Intermediary & SVA Senior Valuation Analyst Certifications.

You can reach Richard at or 479.689.4455 Ext 11

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