Answer: it depends on who you ask.
Different experts will give you different answers. None of them is wrong. What your privately-held business is "worth" depends on why they are doing your evaluation and how they are approaching the exercise.
Your CPA is primarily interested in your book value: what your assets are worth. She may also calculate your liquidation value: what you can get in a forced sale.
A financial planner is interested in your retirement. Your business may be just one of your assets in your portfolio. He wants to know what percent of your portfolio is the business, and what he needs to do to get you to your retirement number. His evaluation is likely to be very conservative because he wants to make sure he's got you more than covered (and maybe sell some investment or insurance products).
A certified appraiser is doing a deep dive into your business. Appraisers will produce a value that could be argued in a court of law. Usually, they are employed to handle divorce or partnership breakup, or family succession planning. Appraisals are expensive.
Other experts doing valuations are bankers and other lenders who want to make sure their loan risk can be supported by your business. Another type of valuation -- performed by finance experts -- is based on projections they think your business could produce in the future. This is rarely, if ever, used in the small business arena.
Which brings us to Business Brokers (finally!). Our perspective is that your business is worth what someone would be willing to pay, and what you are willing to accept:
- A Business Broker is looking at what your business can sell for in today's market. We look at your same financials as everyone else. Among the many value drivers, we focus primarily on your discretionary earnings: what is, and what has, your business produced for you and could produce for a buyer.
- Your potential buyers want to know what it will cost to buy your cash flow. This depends on the multiplier of your cash flow. Different industries have different multiples. Our estimate is a market placement opinion. We look at what comparable businesses like yours have sold for in the recent past at what multiple of earnings.
- We give you a high, middle, and low range of prices -- again, based primarily on your discretionary earnings -- and suggest what we calculate is a reasonable asking price should you want to list your business for sale.
Click here If you would like to calculate an estimated price for your business using our Market Range Estimate® calculator. If you'd like a free consultation to learn more about how we can help you please call us in the Carolinas at 704-895-4274 or in Georgia at 678-427-1163. Our email is info@theCBAgroup.com.
Michael provides professional services involving the evaluation, sales, mergers and acquisitions of small to medium-sized businesses. Along with his MBA, Michael’s business experiences include senior management roles in Fortune 500 corporations to leadership positions with venture capital-backed high tech start-ups. Michael also brings small business knowledge through his seven years of owning and operating an independent bicycle shop in Alpharetta where he has lived and worked for the past 22 years.
With Michael and The CBA Team, you are represented by outstanding, experienced and knowledgeable professionals who will provide you with sound financial, strategic and tactical advice to best achieve a successful transaction. The CBA Group has been helping business owners for over 16 years. The CBA Group brokers have over 185 years of collective business experiences.
