Business Valuations

Transworld of Atlanta-North’s Business Valuation Professionals Are Ready to Help

Transworld of Atlanta-North has business valuation professionals on our team who can value your business adequately. We can meet with you on an individual basis and figure out how much your company is valued. Valuation reports are also available upon request. You can reach out to us for more information by calling 404-666-4486 or emailing [email protected].

How Much Is A Business Worth?

When thinking about a sale, valuation should be one of the first questions that pop in your mind. Our sellers always think about this, and so do the buyers. After all, it makes people feel a lot more comfortable knowing how high the returns will be in the exchange. There are no easy answers, however. Valuation in business boils down to the appraiser’s judgment, skill, and approach to their methodology. It’s almost like creating a painting as opposed to applying the scientific method to solve problems. Several standards come into play when determining the valuation of a business:
Fair value
Legal standards to value. Often used in divorce.
Investment value or strategic value
The value to specific buyers. Could exceed fair market value.
Fair market value
The price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy, and the latter is not under any pressure to sell, both parties having a reasonable knowledge of the relevant facts.
Intrinsic value
Stock values that investors would consider.

Why Should You Know the Value of Your Business?

How much is your business genuinely worth? Without knowing how or why you’ll never be able to sell your business the way you want. Here are several important reasons why this information is so instrumental:
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Selling a business

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Buying a business

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Estate, Gift and Tax planning

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Buy/Sell Agreements

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Partnership/Shareholder Disputes

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Banks Financing Requirement

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Personal Financial Planning

Business Valuations

Fair Market Value
Now, let’s talk about fair market value in more detail. Fair market value is basically what buyers pay to buy companies on the market. This is a more simplistic explanation, of course, but the valuation practices are more on the complicated side.
 
As part of their services, there are valuation professionals who can give detailed reports, often extremely complex. The IRS uses these reports in their inquiries. Not only that, there are other situations where these come in handy like during legal proceedings or the financing process. Often, a company’s full valuation can cost anywhere between $10,000 and $30,000! Smaller businesses usually will not need such complicated valuation methods & metrics and are well off with our simplified approaches to valuation. You can rest assured you will have a listing and a clear sales price with our assistance.
 
There are three generally accepted approaches to valuing a company:
 
• The asset approach
 
• The market approach
 
• The income approach
Market Approach
Simply defined, it is much like a real estate comparable method. Like businesses in size and industry sell for similar valuations. There is the guideline publicly traded company method or the merger and acquired company method (private sale databases). There are many databases we can research to find multiples of gross sales and earnings to compare to your business. This method can be very reliable in most cases and is a strong indicator of value.
Asset Approach
As you might expect, the Asset Approach subtracts the liabilities away from your business assets. Book value, excess earnings method, and the asset accumulation method are common Asset Approach strategies used. The problem is these values don’t provide much in terms of figuring out the market value of your business. In conclusion, the Asset Approach is a poor way to measure the value of an ongoing enterprise with positive earnings and growth potential.
Income Approach
Your business is worth the present value of the income stream it will bring to an investor. There are several complicated methods including the discounted future earnings method as well as several capitalization methods. This approach is also a reliable indicator of what a business with positive income is worth. These methods rely on future projections and growth rates to decide what the company may be worth it. If that is true then why do most people multiply or capitalize historical earnings to arrive at a value? Because the assumption is the buyer will maintain the current income levels, and they are a reasonable indication of future earnings.
Multiple Of Your Past Earnings
Wait? Multiples? What is this all supposed to mean for me? The answer isn’t that complicated, fortunately. Look at it from the perspective of the buyer. If they know they can continue to sustain these earnings, they can also look at how much your business earned in the past. That’s why your business is worth a multiple of your past earnings in this case.
What Is The Multiple?
Well, first we must discuss what you want to multiply? Net income? EBITDA? Owner’s benefit? In small business sales (businesses earning less than 1 million dollars), we use owner’s benefit. Owner’s benefit equals the net income, plus depreciation, interest, and the owner’s salary and fringe benefits. In other words, all the income available to ONE owner if the company was debt free. EBITDA is used by larger businesses and includes normalized salary and benefit package for an executive to operate your business.
Okay, Now The Multiples.
Well, the multiples of owner benefit can run from less than one to about three. If your company is more massive and your EBITDA is near or above one million, the multiples can run from four to six. Is this set in stone? NO! How do you know which multiple would be used for your business? Well, the multiple will rise along with the size, quality, and verifiability of your owners benefit. Bad books, dim future, negative growth, and little profits equal a low multiple. Excellent books, bright future, exceptional growth will garner you a high multiple.
Can all that mean nothing? Yes!
Buyers determine a business’ eventual sale price. Not valuation experts. That is why no one can tell you exactly what your business is worth. Not your banker, CPA, lawyer, broker, or mother-in-law. The only individual that will tell you what it is worth is the eventual buyer – and that will be a subjective evaluation. The same business will be valued differently by every buyer.

Lost Yet?

Here’s A Summary Of Business Valuation. Your business is worth the following:

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Multiple Earnings

A multiple of earnings compared to like businesses (gross sales or owners benefit times an industry multiple).

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NET PROFIT CAPITALIZATION

A capitalization of the net profit (Not Owners Benefit…you cannot capitalize owners benefit!) 20% to 50% or a simple multiple of owner benefit.

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Assets Value

And if your business makes little or no money – Asset value is the only value. (Goodwill + Inventory + Equipment +etc.) Either sold as a whole or liquidated over time.

How Do Transworld Atlanta-North Advisors Narrow the Value Down

Remember, many other things can affect the value of your company. Location, size, competition, growth rates, industry trends, quality of books, ease of transfer, control issues, time you have to sell, terms of the sale, leverage, what business broker you hire.

Once again, this is an oversimplification of a very complicated subject. If you need a valuation, you should consult Transworld North Atlanta, a valuation specialist, or someone familiar with business sales. Now that you know how businesses are valued, perhaps you can concentrate on increasing profits and your eventual profit in your business sale.

Need Valuation From a Trusted Advisor? Transworld of Atlanta-North Has the Answers!

We hope you’ve learned a lot about business valuation and our different approach to it all! We have many solutions available, and it’s essential you get in touch with our team to discuss these matters. To get started, please call us at 404-666-4486 or email [email protected] for more information!

3 Dunwoody Park Suite 103
Atlanta, Georgia 30338
(404) 666-4486
[email protected]