Business owners hear all varieties of formulas from friends and associates about how to value their companies. Everyone has a story. They hear their businesses should be valued based on multiples of earnings, EBITDA, multiples of revenues, and on and on. In fact, it is quite simple: A business is worth what a willing buyer is willing to offer and a motivated seller is willing to accept.

Listed below are eight “Eternal Truths” about the values of a business:

• All business valuations are opinions – the only true test of value is an arms-length sale on the open market after a thorough marketing program
• Businesses are bought and sold by human beings – non-financial factors, motivations, and negotiating skills are as important as financial accounts and spreadsheets. (We continue to see businesses sell at prices that astound us.)
• Values change over time – price is driven by supply and demand and can change dramatically, e.g. through an influx of immigrants, new technology introductions, etc.
• Terms and conditions impact price – vendor finance, on-going consultancy, non-compete clauses, earn-outs and warranties can all skew prices.
• Businesses have different values to different buyers – the “job” buyer, the investment buyer, and the trade buyer (synergies and economies of scale) will view the same business differently and the benefits they can derive.
• Full information underpins credible and defensible opinions of value – the more curious and thorough the appraiser is, and the more careful the analysis and risk assessment is, the better the opinion.
• Beware of forecasts and “hockey-stick” projections – while valuation should be forward looking (buyers are buying the future income stream) purchasers should be cautious. It is time and capital that will access the potential. “The future hasn’t happened yet!”
• List your business with an experienced specialist business broker to maximize price – we have the appraisal skills, multi-pronged marketing strategies, negotiating experience, professional team, and understand the importance of confidentiality.

After twenty years of working with business owners, valuing and marketing a business becomes a science, and an art. When it’s time to evaluate your company, hiring the right firm is essential to your success.

Chet Walden, CBI, BCI, M&AMI
CEO and Principal
Walden Businesses, Inc.
cw@waldenbus.com
678-277-9951 x 15

Research Source: Clyth MacLeod Limited

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