Valuation is the primary question of Sellers when considering the sale of a business, and a determining factor of the Buyers. Valuations
are subject to judgement, however there are several standards of value that are looked upon by lenders , banks and the SBA.
* ASSET APPROACH - Values the assets of the business minus the liabilities. This is often looked upon as
the "BOOK VALUE" The Book Value does not usually represent the value of a going business that has positive
earnings.
* MARKET APPROACH - This is similar to the Real Estate comparable method. Similar businesses in size and
industry sell for similar values. There is the Publically Traded method or the Merger and Acquisition method. There are many
databases that we research to compile the Market approach.
*INCOME APPROACH - The business is worth the present
value of the income stream it will bring to an investor. This approach is a strong indicator of what a business with strong
income is worth. The business value is determined by a multiple of earnings.
The multiple of owners benefit can
run from less than One to Three or more. If the business is over One Million the multiples can run from four to six. It is
all dependent on the quality of the company and earnings as well as the outlook of the economy.
