Business Valuation

To properly value a business (not an appraisal), much information is needed, including:

• Industrial classification (type of business)
• Stage of business (growth, high growth, mature, declining, etc.)
• Goodwill in the community
• Income (sales, rent, signage income, parking fees, tax credits, depreciation, etc.)
• Expenses (cost of goods, mortgage, loans, taxes & assessments, utilities, contracts, leases, etc.)
• Improvements (upgrades to:  HVAC, improvements, utilities, parking, building, common areas, etc.)
• Inventory (wholesale costs, retail costs)
• Personnel (salaries, direct & indirect costs, outsourcing)
• Liabilities (health care costs, retirement/pensions/benefits, pending tax payments to local/state/federal governments, loans, liens, judgments, etc.)
• Stock (outstanding shares, share price)
• Owner’s Benefit (salary/benefits, personal use of company vehicles/equipment, tax offsets, etc.)
• Cost of capital/interest rates

Additional items that affect the value are ease of financing (owner financing vs. bank financing), the number of similar businesses and the urgency for disposition of the business.  When determining a range of value for a business with real estate, the business is valued separately from the real estate.

Using this information and comparing to industry standards for similar types of businesses, a range of value can be derived.

Care and due dilligence should be excercised when buying or selling a business.