Posted 12-13-2022 3:18 pm by
As a business broker in Las Vegas, Aaron Muller talks to many business owners in Southern Nevada. Some are looking to retire, some are looking to spend more time with family, some are tired of doing the same thing, and some are looking to travel the world. Whatever the motivation is, there comes a point in time in the lifecycle of business ownership when the owner is contemplating the possibility of selling his or her business in Las Vegas.
One of the first questions business sellers ask is: “How much is my business worth?” There are different ways to value a business. Business valuation can be a complex endeavor with many variables, but the following guidelines should help.
The first step to business valuation is to determine the type of business that is being valued. For instance, if the business being valued is a family-owned or privately held business, obtaining recent comparable sales data can be difficult since most privately held companies are sold confidentially. For this reason, the comparable sales approach is not frequently used for valuing small businesses.
The next step to business valuation is to determine the intent of potential buyers. Is the business marketed to a much larger company that is looking to acquire the business for strategic reasons? Is the business marketed to similar-sized companies that are looking to buy out their competitors? Or is the business marketed to individuals who are quitting their jobs and going into business for themselves?
It is important to determine the intent of the potential buyers because what is valued by the buyers plays a large role in the sale price of your business. When Google acquired YouTube for $1.65 billion, YouTube did not have the revenues or cash flow to justify a $1.65 billion sale price. Instead, Google was a strategic buyer that wanted the number of users on the YouTube web site.
On the other hand, the buyers of most small businesses are individuals who are quitting their jobs, plunging their life savings into the purchase, and going into business for themselves. In this scenario, the buyers care a lot about the cash flow of the business. Revenues do not matter to most small business buyers as cash flow does, because at the end of the day, these buyers need the cash flow to meet their personal expenses. For this reason, most small businesses sell based on their cash flow.
How exactly is cash flow defined? It is common knowledge that many business owners like to minimize the net income shown on their tax returns in order to minimize their tax liability. To accurately portray the cash flow of a business, one needs to perform a financial recasting of the company financials. For instance, there are expenses such as depreciation, meals and entertainment, owner’s salary, etc. that can be added back to the net income. The total “owner benefit” is termed Seller’s Discretionary Earnings, or SDE.
Most privately held companies with annual revenues of $5 million and under sell based on a multiple of the SDE. The exact multiple can vary based on the desirability of the industry, the competitive advantage of the business, the operating history of the business, historical profitability and trends, whether the business is run with an absentee owner or owner operator, and other factors that can influence the multiple that is used.
To arrive at the market value of your business, Advantage Commercial Brokers can help you perform a financial recasting, calculate the SDE of your business, and determine the appropriate multiple to apply based on industry trends, current business sales conditions, and a general operational assessment of your company.
If you are considering selling your business in Nevada, contact Aaron Muller at aaron@acbrokersinc.com or (702) 829-6373 for a confidential and complimentary business valuation. There is no obligation to list your business. Knowing what your business is worth under current market conditions allows you to make an informed decision about whether it makes sense to sell your business now or not.
Aaron Muller, President of Advantage Commercial Brokers, has personally sold over 200 companies for his clients as a business broker. Recognized as an Industry Expert by the Business Brokerage Press, Aaron has over 20 years of experience selling companies with sale prices ranging from $100,000 to over $50 million. Aaron is an Inc. 500 entrepreneur, having built one of America’s fastest growing private companies. Aaron owns multiple companies today, and is the #1 international bestselling author of The Lifestyle Business Owner: How to Buy a Business, Grow Your Profits, and Make It Run Without You, available on Amazon in Kindle, audiobook, and paperback. Contact Aaron at (702) 829-6373 or aaron@acbrokersinc.com for a confidential, complimentary consultation for business sellers in the Las Vegas area.
