If you're looking to make an exit from your Middle Tennessee or Franklin Business, you likely have have wondered "What is my business worth"? It's an important question to get answered. Here we found a video by John Hunt on how to value your business.
For more information about a business broker in Franklin, you can find more information here: HPX Advisors - Serving Franklin, Murfreesboro and Brentwood Tennessee!
Don't have sound available? Here's the full transcript from this video!
Hi. I'm John Hunt. I'm here on the bay front in beautiful St. Augustine, Florida. I'm a business broker, and I work with buyers from all over the world to help them find the business that's just right for them, and I work with business owners to help them find an ideal buyer for their business. Today I want to talk with you about how we can work together to find the fair market value of your business in today's market.
When I talk with business owners, I often ask, "Have you ever thought about selling your business?" It's interesting how often I get the same response, and that is, "I think about it every day." Perhaps you've thought about selling your business, either to retire, to relocate, or to take on an entirely new challenge. I can't help you decide when the time is right for you to sell your business, but we can work together to determine the approximate value of your business in today's marketplace. That basically comes down to three very simple factors. The nature of your business, the annual revenues of your business, and seller's discretionary earnings. If I lost you on that last point, seller's discretionary earnings, don't despair. We're going to walk through an example to show you exactly how those are determined.
Seller's discretionary earnings sounds like a complicated term. In fact, some brokers use the term adjusted net. Some use SDE. I prefer the term owner benefits. It really refers to the net profit or loss of a business with certain add backs, such as amortization, depreciation, compensation to the owner, a health insurance plan, a car payment, even a cell phone payment. Any expenses that are a benefit to you as an owner are added back to determine total owner benefits.
The easiest way to determine the value of your business is to compare it to other similar businesses that have sold. It's very similar to what a residential real estate agent might do in preparing comps if you decided to sell your home. When we talk about comparing your business to other businesses that have sold, I use information on the database of the Business Brokers of Florida. We have information on thousands of business sales. For instance, if we look in our database for pizza stores that have sold, I can do a search, and I find 241 pizza stores that have sold in Florida. I can sort this information by the sold price, the annual revenues, or the owner benefits. That way, I can narrow the results to closely mirror those of your business.
Okay. Let's walk through an example of how we determine an approximate value in today's market. We work with tax returns, profit and loss statements, and other financial records. Tax returns are the highest and best evidence. I know you'll find this shocking, but not all business owners report all income on their tax return. For an example, let's say that you have a pizza shop with $500,000 in annual revenue.
Let's say that this pizzeria had a tax return profit of $30,000. That doesn't represent the total owner benefits. I'd make several add backs. For instance, if the owner was paid $30,000 and the business had $15,000 in depreciation, add perhaps another 15,000 for amortization. Then I'd look for other common add backs, such as meals and entertainment, health insurance, a car payment, or a cell phone bill. Whatever business expenses benefit the owner, we add back.
You can see that when we total these, it's easy to have owner benefits of more than $100,000. Our Business Brokers of Florida database reveals pizzerias in this range sold for about 1.4 times the owner benefits. This would put the value of our example at about $150,000. Once we determine your owner benefits, I can provide you with the lowest, highest, and average prices paid for businesses like yours with similar revenues and owner benefits.
Pricing your business correctly is key to generating buyer interest. Buyers shy away from businesses that are overpriced. If you'd like to work with me to establish an opinion of value on your business, I look forward to working with you. Simply give drop me an email... please note there are two H's in the middle of this address... or give me a cal. I look forward to working with you.