When you work with a VR Intermediary to develop a valuation report, the goal is a simple one, the creation of an accurate and comprehensive document that will stand up to scrutiny. You will receive a professional business valuation that becomes the best tool to obtain maximum selling price. Without a professional valuation, a business owner must be prepared to defend his opinion of value. VR's depth of experience coupled with a vast knowledge of valuation will result in an expert opinion of value, delivered in a responsive, timely and efficient manner. VR has valued and sold virtually every type of business.
Small and mid-sized businesses typically depend on four key value factors:
- Seller's Discretionary Earnings (SDE).
- Terms of the Sale.
Seller's Discretionary Earnings: The main factor of determining value for small and mid-sized businesses is the total cash flow benefiting the owner - also known as Seller's Discretionary Earnings (SDE). SDE is calculated using the following six categories:
- Profit or loss as reported.
- Owner's Salary.
- Discretionary Expenses.
- Non-recurring Expenses.
- Non-cash Expenses.
- Expenses not included in the P&L.
Once theses categories are added together and an SDE is developed, a multiplier is applied. The multiplier can range from 1 to 5 (or more), depending on many factors, to arrive at the appropriate value for the business.
The second valuation factor is the level of risk. Factors in this category include:
The majority of sales include the seller to provide some level of financing to the buyer of the business. With seller financing, the seller receives part of the purchase price at the time of the sale ("the down payment") and the remainder over several years. The buyer uses the cash flow from the business to pay off the debt. Structuring a sale with attractive terms can significantly increase the value of a business.