March 23, 2023
What’s Your Business Worth
By Scott Lauray
Is it as easy as Google or one of your friends told you it is? Did you apply a multiple, probably somewhere between 3-5, to your EBITDA?
Congrats, you’re on the road to implementing an Income Approach to business valuations. However, of the 3 main methods, how do you know that is the right one for you (Asset, Market, and Income approaches)? Did you cross-check it against the other methods? If you didn’t, I would say that makes you normal. I would also argue that you might be leaving big money on the table or worse yet, overpricing your business and implementing the deathblow of it being on the ‘market’ but not generating any traction and devaluing your asset each day that it sits.

The Process

A thorough, reliable process formulaic inclusion of concepts and data inputs that can include Net Income, Revenues, Cash Flows, EBITDA, risk and risk concentrations, Cost of Capital, returns and the time value of money, just to name a few. As you work your way through the process with a pro, consider what resources you will be using for:

  • Determining the Standard and Premise of Value
  • Sources of Information for:
    • Resources to determine the cost of capital
    • Regional and National Economic Data
    • Comparable Business Sales
The State of Financial Statements Readiness

Are your financial statements:

  • Compliant with Generally Accepted Accounting Principles (GAAP) and/or International Financial Reporting Standards (IFRS)?
  • Translatable to industry standards?
  • Reconciled easily to tax returns and actual bank statements?
  • Inclusive of a robust, realistic forecast?

Margins and Key Metrics Important to Your Industry

If key metrics such as your Gross Profit are less than industry standards or your competitors, you might not be operating as efficiently as you could be. Take off a chunk from that price tag over which you began salivating last week. Perhaps you’re margins and other key metrics are better – there’s potentially some premium there and possibly an increase in price.

Don’t make blind decisions and leave profits on the table – choose Northwest Business Group and take control of your financial future.