Sacramento Business Valuation

Are you a Sacramento business owner thinking about selling your business? The first step is to determine what your business is worth. A business broker can assist you in determining that value by performing a business valuation.

While there are a number of methods used to value a business, the most common formula for smaller transactions is a multiple of seller’s discretionary earnings. This type of market-based valuation involves recasting profit-and-loss statements by adding back  interest, taxes, depreciation and amortization  to arrive at Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). Now add back discretionary items such as owner’s salary, perks, and nonrecurring expenses resulting in  the S.D.E. of the business.

Now it is time to arrive at an appropriate multiple. A number of variables play into arriving at an appropriate multiple including; company history and stability, growth projections. competition, barriers to entry, customer concentration, key employee retention, capital expenditures, environmental risk, and more.

It is also important to realize that buyers are willing to pay more for a larger discretionary earnings flow. For example a business generating a $1M cash flow will almost always generate a higher multiple than a business generating $100,000.

Another popular method of valuation is the Asset approach.  This is more prevalent in industries requiring a lot of equipment and machinery.  This method values the assets and liabilities based on a fair market value and includes any intangible assets and contingent liabilities and the business valuation is derived based on these factors.

There are different types of business valuations designed to meet different purposes. This is where a professional business broker can provide assistance. For assistance in obtaining a Sacramento Business Valuation, contact Ron Schwab at 530.269.1143.