What Is My Business Worth?

As great economists always say…It depends…

When placing a value on your business you must identify the "Right Buyer." The range of values that different Buyers may be willing to pay are staggering. Buyers pay for opportunity. The Buyer who perceives the greatest opportunity is the Buyer willing to pay the most for your business. Identifying the "Right Buyer" requires understanding the four main classifications of Buyers. 

The Strategic Buyer

• Sales in excess of $10 million
  
• Proprietary product or process
  
• Unique market presence
  
• Synergistic fit with the buyer
  
• Suitable management willing to stay 

Sometimes a business that does not meet these criteria can be the target of a "strategic buyer." A good example might be a small busi­ness that an acquirer believes could be franchised or expanded into a chain of similar locations. At VR Business Brokers, we look for every reason that your business might be made attractive to the strategic Buyer. 

Private Investment Group/Sophisticated Buyers

This group emerged during the "merger mania"" of the late 80’s.  Buyers began to recognize the opportunities in the pri­vate sector. Lower interest rates have also spurred the growth of these Buyers by encouraging the formation of investment groups whose purchases are made using a "schooled" approach. There are two distinct types of Sophisticated Acquirers and the acquisition criteria they use are as follows:

Private investment or holding company

• Revenues from $10 million upwards to $100 million
  
• Earnings of $1 million
   
• Investment of considerable cash or equity
  
• Pay 3 to 10 times EBITDA 

High Net Worth Individuals

• Revenues from $2 million upwards to $20 million
  
• Expect 6 figure future earnings
  
• Expect to leverage a part of the purchase
  
• Expect the Seller to finance part of the buy
  
• Pay 3 to 7 times EBITDA earnings 

Sophisticated Buyers sometimes buy companies smaller than the outlined criteria. A good example of a business attractive to the sophisticated Buyer is quick printing, a light manufacturing busi­ness expandable into multiple locations through good marketing and solid management. 

Cash Flow Buyer

By far the largest group of Buyers, Cash Flow Buyers are the most common Buyer for Main Street and Upper Main Street businesses. These Buyers tend to focus solely on pre­sent and past earnings and will not typically pay a price based on future earnings. The Financial Buyer is buying a job and will consider a price fair if the transaction meets the following criteria:

• A living wage typically commensurate with the initial investment
  
• A modest return on the cash investment
  
• P/E ratios of I to 4 times SDCF
  
• Seller financing
  
• A good fit with their skills and the opportunity to make the business better

Many small businesses are purchased by Cash Flow Buyers. VR Business Brokers maximizes the amount the Financial Buyer is will­ing to pay by finding the right Cash Flow Buyer for your business. 

Industry Buyer

The Industry Buyer is almost always the Buyer of last resort. If you have to sell, the Industry Buyer is usually the only Buyer you will attract. The difference between the Industry Buyer and all ethers Buyers is the value of goodwill: Industry Buyers won't pay for it. The Industry Buyer typically will pay:

• Liquidation value
  
• Book value
  
• Adjusted Book Value

All too often business owners who are attempting to sell their busi­ness on their own say, "Why not? I knew everybody in the indus­try." Unfortunately, 99 out of 100 times, a sale to an Industry Buyer means a deeply discounted sale.