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Fact
Sheet
Small
Business Valuation
Most business owners wonder what their businesses are worth
and financially savvy professionals seldom agree -- Why?
·
Sales are private and, unlike real estate transactions, not
recorded -- therefore scant comparable sale data is available
·
Rumored sale results are often inflated or exaggerated
·
Public accounts of actual sales are usually not analogous
·
Best known valuation methodologies are inappropriate for
estimating the value of a small business
·
Financial information is of secondary importance when assessing
value
·
Little is known of the different buyers in the marketplace --
different buyers pay different prices.
·
The impact that restricted financing has upon value and
transaction structuring is overlooked
·
The fact that a business’s Fair Market Value is not necessarily
its Fair Cash Value is not understood
·
Relationship of motivation and value is not easily measured
What multiple of earnings is appropriate when
estimating the value of a small business?
·
Multiples currently in use range from a low of 1 to a high of 15
-- but a multiple of what?
·
Unlike the public company sector where earnings are defined as
after tax, a standard definition of earnings for private companies does not
exist -- instead an array of “true earnings” computations has evolved
·
Some buyers will discount earnings entirely and focus solely on
the value of assets to be transferred
Are there value “rules of thumb” that can
be used on specific types of businesses?
·
Yes, and they are sometimes accurate -- however, most “rules of
thumb are dumb” and should not be relied upon in serious considerations
·
Hundreds of rules of thumb have evolved to fill the void caused by
the lack of comparable sales data
Back
For more information contact:
Ted Burbank, CBI
1-508 794-1200
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