How Much Is My Business Worth?
This is an excerpt from the MarketingBoost podcast with Marco Torres "Capt Marco". The entire show is FULL of great information about selling businesses, growing businesses and so much more!
Listen to the entire episode here: https://podcasters.spotify.com/pod/show/marco-torres97/episodes/Maximizing-Your-Business-Value-Secrets-to-Selling-Success–Marty-Fahncke-e2b37k1
Or watch it here: https://youtu.be/cwIam9K61y0
To learn more about Marty Fahncke, Business Acquisitions, and Westbound Road visit our website: https://www.westboundroad.com
Yeah. So speaking of that, let’s talk about how do you define the #ValueOfaBusiness? How does our listeners out there know what their business is worth?
Yeah, and I’m going to relate to Real Estate a lot because you brought that up and it’s a great way for people to kind of correlate. So in real estate with a house, they go and they do comps. They find the houses that are similar nearby and they look at the square footage and they do these calculations and they come up with a number and they give that number to the bank. And the bank says, this is the value and that’s how much they’ll loan you for it. Businesses are different. Businesses because of the nuances and the number of different things that can happen in a business, there is no set number. There is no one number that you can go and say, this is the value. Businesses are valued based on a number of different things. First of all, how it’s calculated. It can be calculated on the REVENUE which is the total amount of Money the business is bringing in. Some businesses you can make that happen. Other businesses are calculated on the PROFIT. And the profit could be even that has definitions that could be different depending on the size and type of a business.
Speaker 2 (22:33)
So it could be called EBITDA, which some people may have heard of Earnings Before Interest, Taxes, Depreciation and Amortization EBITDA. Or in smaller businesses, profit is often called SDE, or Seller’s Discretionary Earnings. And essentially what that is on smaller businesses where the owner may be receiving monetary benefits from the business that aren’t directly salary related. So the business might be paying all of their health insurance and all of their car payments and their cell phone, everything else. So combined, how much is the discretionary earnings and the total earnings of the owner? And then there are industry multiples out there that you can research, you can Google current acquisition industry multiples for whatever my business is, whether it’s a restaurant, whether it’s a gas station, whether it’s plumbing, et cetera. And you can start to get some ideas of what your business might be worth, if you want to get a rough idea, certainly bringing an Advisor in to do a professional valuation is of benefit. When we do a professional valuation, again, we don’t ever give a single number, we give a range. We say, okay, the business is worth somewhere between this number and this number.
Speaker 2 (23:49)
And there’s a variety of factors that may impact it, including do you want all cash when the buyer shows up? Do you want 100% of the money in your pocket day one, or are you open to seller financing or earn out? Which means some of your money may come over time. There could be as much of a 30% swing in valuation, depending on the terms that you offer. So we’ll give a range and say at the lowest price, it’s worth this, meaning sell it tomorrow for cash, and at the highest range, it’s worth this, meaning you have very flexible terms and time to wait for just the right buyer to come along. So we’ll give out a range when we do a professional price valuation, but there are lots of resources that you can go and plug in and at least get an idea of what your business is worth. And always run more than one formula, always run revenue-based. Always run at least a revenue-based and a profit-based. There’s a number of other formulas as well that include gross profit. Then, of course, if you’ve got inventory and equipment that has to be factored in. If you’ve got lots of vehicles or if you’ve got real estate that’s tied to it, that’s all got to be added in as well.
Speaker 2 (25:00)
So it’s a complex formula and there’s no one answer. Anybody that gives you one number for the value of your business is probably doing you a disservice, because that’s just not realistic.
