How We Value Businesses

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Posted by Jennifer Smith Hendrickson on

You’ve probably received a few newsletters from us now that mention getting your business valued and why you should do that. Perhaps you’re wondering how we actually determine the value of your business. Below are the steps in our process. When we compare our valuations to actual sales prices, we’re accurate +/- 3%. This means our valuations are incredibly accurate.

Broker Opinion of Value (BOV) steps:

  1. Reach Out: The first thing that we’ll need is to know that you’re interested! After you reach out, we’ll have a conversation about your business to get to know a little bit more about your unique situation.
  2. Submit Financials (and payment): In order to know what your business is worth we’ll review tax returns from the past three years and a profit and loss statement from the trailing 12 months.
  3. Complete the BOV: We use three different methods when assessing your company:
    1. Market Method: A multiple of recasted earnings based on comparable and industry sales data.
    2. Multiple of SDE: This takes into account some of the “softer factors” that don’t always show up on the profit and loss statement.
    3. Buyer’s Test: At what price point can the business service the debt and meet the financial needs of a realistic buyer? Generally speaking, if it can’t do those two things in a main street transaction, it simply won’t sell.
  4. Review the BOV: Once we’ve run the numbers, we’ll schedule a time to meet with you to fully explain what your business is worth and why. It’s about 20 pages to go through, but we’ll walk you through it every step of the way.
  5. Next Steps: We’ll work together to decide whether now is the right time to sell or if it would be better to wait and position your business so that it will have a high likelihood of selling later.

Getting your business valued is a pretty straightforward process and we make it easy to understand whether you are preparing for sale or just want to make better decisions.  When you’re ready to know what your business is worth, contact us.