So, how much is a business worth?
That's a question that both buyers and sellers need to carefully consider, and it should be addressed through a rational process to determine that value!
Over the years, we've seen a number of methods used to calculate the value for a business:
- Discounted Cash Flow Value
- Going Concern Value
- Net Book Value
- Liquidation Value
Another important consideration that we've seen for those purchasing a business relates to the changes they plan to implement after acquisition. These changes should be reflected in the business plan and financial projections for the business on a go-forward basis.
Once again, we come back to the importance of having a solid business plan. At Pro-Vision Solutions Inc. we work with you and other members of your "team" to help as you build your business. Regardless of where you are in the entrepreneurial process: pre-start, ready to launch, growth phase, mature, reinventing, or exiting ... PLANNING is important, and we'd be pleased to discuss your business planning requirements.
In this post, our friends from Sunbelt Business Brokers provide a follow-up and conclusion to a discussion that was started earlier. We appreciate their expertise and trust that you'll find it helpful as you consider buying or selling a business. And now, please enjoy this guest blog post.
Notes: Excepted from “INSIDER TIPS ON SELLING A BUSINESS IN CANADA” by Greg Kells
*SDE is net income less: interest; taxes; depreciation and amortization; owner’s compensation (including salary and discretionary expenditures.
With recasting - operating expenses were normalized to $192,500, leaving an extra $107,500 in the net profit after recasting out discretionary spending, taxes, interest and depreciation. That normalized the net income to $109,500. It’s not that certain expenses aren’t legitimate—it’s whether or not they’re essential for the next owner. Sometimes, we need to add back discretionary expenses that an owner hasn’t included--a family member who works for no pay, an owner who uses his own tools, unrecognized expenses, or where a business is uninsured or under-insured.
In our example, the true earnings were determined to be $109,500, ( 16% of Revenue ) proportionately more in line with the 15 to 25 percent of gross sales that SDE typically represents in a small (four- to six-bay) auto service centre.
The EBITDA or Earnings Before Interest, Taxes, Depreciation and Amortization in this example is $59,500, as we would have to add back the cost of a replacement for the owner at a fair market wage estimated at $50,000, giving a SDE of $109,500
Sunbelt Business Brokers EdmontonSunbelt’s team of brokers, operating at local and regional levels, have experience selling small to medium sized businesses.
More than 1,400 Sunbelt brokers annually coordinate an estimated 4,000 Main Street and Middle Market business transactions.
A variety of strategies are required to sell businesses from different industries, of different sizes, and in different economic climates. Many Sunbelt brokers have specific industry experience and cooperate with their counterparts to identify the buyer and create the right framework for the sale.
Your Local Sunbelt Business brokers sell a diverse mix of main street businesses valued under $3 Million. Mergers and Acquisitions of larger and more complex business transactions of up to $30 Million are managed out of the Ottawa Head Office. We would like to help you plan and look forward to retirement, expansion or an exciting new business opportunity.
Have you ever thought about selling your Business?Sunbelt represents clients who may be interested in buying a business like yours. If you are thinking of selling a business now or in the next 3 years, discover what your next steps should be. Feel free to contact our Sunbelt Business Brokers Edmonton office if you have any questions or would like a free confidential consultation. Give me a call. Dale Alton – 780-878-8787
Sunbelt - The Place to Buy or Sell a Business.
In closing, we invite you to consider Pro-Vision Solutions Inc. as a part of your TEAM of business professionals. We're pleased to assist those who are working on their business plans for start-up, growth and expansion. Let us know if that's something you may require, and let's have a conversation!
Together, we can help you Build your Business Dream, starting with your Business PLAN.
NOTE: For more information on the services provided by Pro-Vision Solutions Inc. and how we can assist ... please visit our Website: www.pvs4u.ca