The value of a typical small to mid-size business should be greater than the total values of its hard assets. For a buyer, the key is that an ongoing business has everything necessary — equipment, location, and inventory if applicable, not to mention experienced employees, suppliers, business processes, and a customer list — all in place, in the right amounts for successful operation of the business.
But how do you put a price on this intangible asset, which is frequently referred to as goodwill or going-concern value?
What about intellectual property, if any?
What if the margins are larger than industry standards?
What if there are significant barriers to enter?
Moreover, how do you determine the true market value of the hard assets used in your business?
e10consulting.com’s team can help you answer these tough questions. Business Valuation is a mix of art and science and we have established guiding principles to quantify the value of all the key aspects of your business in order to obtain the highest overall price.
We know that the Business Valuation process can be very complex and time-consuming. There are a number of valuation methods that we look at when choosing the correct method (or more likely, the correct combination of methods).
Here’s a rundown of the major approaches we commonly use to valuate your business. (We’re not going to overwhelm you with details, since a lot of variables, mathematical formulas, etc. come into play with virtually every method). Our objective here is simply to give you a feel for the process that e10consulting.com commonly employs.
- Business assets, including book value and liquidation value methods
- Historical earnings, including debt-paying ability, capitalization of earnings or cash flow and gross income multipliers
- A combination of assets and earnings, namely, the excess earnings method
- The market for similar businesses, including comparable sales, industry rule of thumb, and p/e ratio methods
- Future earnings, namely, discounted future cash flow or earnings methods.
In addition we consider internal and external factors such as:
- Recasting financial statements: How might your accountant adjust your financial statements, before showing them to potential buyers?
- Partial interests: If you’re only selling part of the business, how does that affect the price?
- Key factors: what factors are most important to buyers? What are secondary?
- Adding value: How can you boost these important factors before the sale?
The overall goal of our business valuation is to obtain the highest possible value for your business without pricing it so unrealistically high that turns off many potential buyers or low that keeps you from cashing out at full value. We also can provide you with certified valuation reports for a nominal fee.