Anyone here an expert in valuing a business? My girlfriend and I own a business and the guy that owns our land wants to retire and get out of town. He has about 3 acres altogether. 142 storage units, commercial buildings, and an open lot that he does boat/rv storage on as well. By my best estimates, cash flows approximately $35k a month. I have no idea what his expenses look like, but am in the process of getting the books. I am trying to estimate the value of his entire operation. Anyone here have experience valuing a business that is willing to guide me a bit? Just trying to get in the ballpark.
You will have to pay him for the value of the property....the land and buildings. Then typically 1 to 3 times yearly earnings. If he's making 420k a year you will need to have a good bit saved up for a down payment.
Depends on the business, but there are lawyers who do this type of thing daily. I would start looking for a good one now, as you will need one sooner or later anyhow. The above post is also true, and with the businesses that I'm familiar with we usually see 140-200% of yearly revenue as the valuation.
Three basic valuation techniques 1. Asset 2. Earnings 3. Cashflow It sounds like the best approach in this case would be Assets. But, that is with very limited knowledge of what the situation. If you have access to Harvard Business Review, look up Valuation Techniques (9-384-185 Rev. August 18, 1988) Good summary article that may help.
That is not necessarily true although I do understand your approach, as it is one used by brokers...... What it's worth as far as pro forma financials are concerned vs actuals can vary greatly depending on which side you're on.... As far as the current owner wanting to "retire and get out of town", does he need the cash to do so or, would he be willing to carry back the note for an agreed upon interest rate and timeline and price? Does he really need the hefty down payment or can you go in to the deal with little cash but agree to bump up the monthly payment to him so its a sweeter deal for him? What are the tax implications for him and how can you get creative to help him reduce any potential tax burden? Is there a value add play in the deal? Can you improve on the various revenue streams that exist? Is there room in the property management side to trim excess? (a lot of property management firms are not vested in running things efficiently because they don't own it) Lots of different pieces to look at here and you need to look at all the pieces yourself and not trust a broker. After all, they are in the business of selling you something and my personal experience with some of them has been they are entirely full of shit.... Get creative and talk with the guy straight....he's built it, so he knows what it took to get it to where it is now.... Unless the owner is a jerk, he'll get your sincerity and just may want to help the younger guy get a leg up in the world.....:up:
Gross. These are business in a service industry who don't sell items. In other words, there aren't expenses above staffing and office related costs. No inventory or anything like that.
Just from the sounds of it......it sounds like a 2+million dollar deal. Don't picture the owner wanting to carry it and hope everything runs smoothly and he gets paid back. Also, sounds like the owner is currently overseeing it and wants to get out. Of course if you understand what the owners looking for it will give you a much better idea on how you can negotiate
Contact a CBV (Chartered Business Valuator). The big 4 accounting firms all have a valuation department, my firm has one (#5 worldwide accounting firm) as well as a ton of boutique valuation firms. There are different levels of assurance you can get from a valuation calculation (basic) to a full blown valuation. There are different multipliers for different industries and have other considerations. A $2M transaction is pretty small. You can get a valuation calculation done for about $5K. Well worth the money IMO.
Cool. I'm always curious about how to value WERA since we have no major assets other than our name and some office supplies. the 1.4-2x gross actually works with what I've always thought.
Your accountant has surely had clients purchase and sell business's, ask for some ranges. I looked for a few years before buying mine. Most I could afford, with a SBA loan, were 2-3 times adjusted net. That means they add the profit, plus owners salary, amortization and depreciation, and any other personal stuff the old owner was running through the business. Those were without real estate. The only businesses I remember noticing with real estate, were car washes, and as I recall they went more like 10 times adjusted net. That was in S. Cal., so the high cost of real estate may change that. Cheapest ones I saw were stereo and wheel shops. II saw a few for only 1 times adjusted net. I didn't want retail, so I didn't pursue it, to find out why they were so much cheaper.
Based on my experience evaluating businesses 2-3x audited Net Owner Benefit plus the value of any real estate and wholesale value of inventory seems to be the rule of thumb asking price. Of course there are modifiers and only a full professional valuation can guide you on those modifiers. You can get the real estate/major fixed assets portion with 10% down through the SBA 504 program. Generally you'll need 20% cash down and if you can work out seller financing that's a good way to go.
Thanks for all of the comments, guys. I think I have it pretty well estimated. Based on the real estate and cash flow it's currently providing, it is actually coming in around $3.7m. I am going to try to work several angles. Will update you all when the dust settles.
