Creating a plan to exit your business can be difficult without knowing the market value of your business. The market value of the business seldom correlates with its balance sheet. A most likely selling price valuation will determine how much money is available for the owner’s salary/benefit, capital investments and debt service.
Business owners are often surprised when they have their businesses valued. Most often they have read information about business values. Most articles have general information like a percentage of annual sales or a multiple of the net profit. The net profit is usually thought of as taxable income and that is seldom the case.
Most owner-operated businesses are valued using a multiple of SDE or Seller’s Discretionary Earnings. The reason for this is the buyer and the lender want to know the business will generate enough cash for a good wage beyond debt service. This is determined by adding back non-cash items and seller’s benefits back to the bottom line. This process is called Recasting or Normalizing the financials. It basically provides an economic view of the company under new Ownership and it allows meaningful comparisons with other investment opportunities.
If your business value doesn’t fit your future plans, getting a valuation will help you identify what areas need work and allow you to develop a timeline. That could be a good place to begin your exit plan.
The process can sometimes be a lengthy one, so it is seldom too early to start.
If you are interested in knowing more about the market value of your business, contact AEGIS Business Valuations 479.689.4455.
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 email@example.com or 479.689.4455 Ext 11