How To Price A Business For Sale
Key factors for a business appraisal
With over 25 years of experience selling businesses, we have developed a system that reflects the true market value of a business.
As the methods we use became very accurate, we were called upon to offer business appraisals for:
1. Establishing a business selling price
2. Estate purposes
3. Owner disputes
4. Family disputes
5. Trusts
6. Legal entanglements
7. Expert witness
There are various attempts by professionals who work at a narrow area to price the business and as a result the value they come up with is not a true value of a going business.
For example:
Accountants tend to be based on business financial statements and tax returns. It is no secret that financial statements are prepared to justify the lowest possible taxes the company should pay.
Profits are not the actual cash flow of the business and assets have a different value than what is stated. The assets are depreciated on a schedule relating to taxes, no their true market value.
Real estate owned will have a market value different than what the business financial statements state. They may use a four, six, eight or higher multiple of book value to determine actual values. Our opinion us that if the numbers are not accurate. How can any multiple of book value be correct?
Gross multiplier method – This multiplier is usually a percentage of annual gross sales. If all the businesses in the same group has the same overhead and the same assets this might work.
But… this does not happen and when you get into unique businesses it just does not work.
Return on investment (ROI) – or capitalization on rates to come up with the value of the business. Businesses differ greatly from a typical real estate investment. They have intangible assets that are much more dynamic.
Businesses can double or triple their value on a year or less, which makes this method to rigid to be of any use.
For over 20 years, after each sale we were apprised of we would work our system backward to see if it represented the true market value. In the past 10 years or so almost every business appraisal came within the range of the final sale.
As a result we began a separate division of our business that specialized in business appraisals not only for the business we sell for our sellers, but also for those businesses that are our interested in selling the time, but want to know their business is truly worth.
For more information and free consultation, fill out the form on this page. One of our staff would be happy to speak with you.
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