The smart approach for your business appraisal.
The first and very important step in the process is to provide a business seller with a reasonable expectation of the sales price.
If it is too high, it will reduce the number of potential buyers willing to take the next steps, and if it is too low – well, you don’t want to leave any money on the table.
Remember that your business marketing will include revenue, earnings, and asset values. You want to make sure it displays a good ROI for buyers as compared to other business listings.
Union Bay Group offers two types of valuations. One is a Broker’s Opinion of Value, and the other is a formal 3rd Party Valuation. The best process for you depends on your purpose and the size of your business.
We will help determine the best route for you. Both types of valuations involve a thorough analysis of the business tax returns, which are done to reduce your tax burden. We look to find true sustainable profitability for our sellers.
Business Valuation FAQs
What goes into determining a sales price?
Many variables are used to determine a reasonable expectation of the sales price. Variables include revenue, earnings amounts and availability of qualified buyers. Other variables deal with risk: customer concentration, length of time in business, dependance on the seller, labor market, the industry, earnings consistency, are the earning increasing, flat or increasing? etc. Final litmus test: does the sales price support debt service, debt coverage and owner compensation?
Do you use "comps" or "comparables" (similar to real estate)?
Individual comps are tricky since the terms of the deal and the strengths and weaknesses of those individual businesses are unknown. For example: how long have they been in business? What is the customer concentration? How consistent are the earnings? These are among the key factors that affect the sales price of a business. We use industry standards that are derived from years of results from hundreds of transactions - then we go higher or lower depending on the strengths and weakness of the individual business we are analyzing - we also make sure cash flow supports debt service and is sustainable. Keep in mind most business closing prices are not verifiable (such as BIzBuySell) since they are private and not publicly recorded (actual purchase agreements are not used to verify the price reported). If the “comps” come from the SBA, the sales price is verifiable, but any strengths and weaknesses are not identified.
Note: UBG will not share the sales price of your business with an organization where the listing has been named to potential buyers who will then have access to the final sale price (such as BizBuySell).
Can I use a sales price available on the internet?
It will probably be missing something specific to the business that you did not consider – it's best to go in with complete data and understanding to ensure a smooth process through due diligence and lending.
Can I use the price my CPA or financial advisor provided?
These types of professionals can and sometimes do offer general pricing for insurance or estate planning, but their profession doesn’t put them in constant practice of putting buyers, sellers and lenders together in a successful deal.
Is my business worth some multiple of revenue?
Sometimes, for strategic buyers. But mostly not. If a business does $1M in revenue but not much in earnings, its not worth much to most buyers. Price is mostly a multiple of earnings; higher sustainable earnings = higher sales prices.
Some brokers offer free valuations, does Union Bay Group?
No, we do not. The amount of time it takes to provide a reasonable expectation of the sales price is not available at no charge. If we took a shorter amount of time that could be complimentary, we would provide you with a number that would most likely be missing something important, and therefore it could not be relied on.
Can I just go in with a high price and negotiate?
The problem with this is that the price needs to make sense to buyer, lenders, buyer’s advisors and partners, CPAs, attorneys, etc. A reasonable price sets the right tone for the rest of the process. Plus, the price needs to be justified.
I heard that listing without a price will get me a higher price.
There is no way to verify whether this will result in a higher price since you can’t go down both roads at the same time. In privately held businesses, every business, every buyer and every seller is unique. Also, business without a price makes it invisible to searches using price as a search criterion. However, sometimes it can be the best approach, it depends.
Do you have a sample valuation?
Yes! It is best that we review it and the valuation process in an introductory meeting to see if this is a good fit for you.
Any other questions?
Please contact us for a complimentary consultation.