Business Valuation

[The Cleaner]

The only thing thats tangible is the assets, so I would say under $20,000.

 

[AC Lockyer]

I have looked at buying some related companies that have some synergies. I am in a partnership that has a detailing company and pressure washing company. I have looked at some window cleaning and roof cleaning companies in the Louisville area.

I am just really looking to get a better grasp on the what some guys have done historically. It is easier to find data on $30M companies vs. $100K.

Josh,

My family has successfully sold several businesses in the past 30 years. The most solid evaluation for a service business is this formula.

(Owners Benefit, Net Cash Profit) * 3 = Value

Another is this formula though it is not as widely accepted by business brokers and buyers.

(Gross Profit) * 3 = Value

The IRS uses this formula.

(3 Years Books) AVE = Value

If you have assets like a facility or other non depreciating property that can be added to the first formula. (trucks, equipment, fixtures and furniture don't necessarily add value to the business if you have depreciated them down to nothing for tax reasons. Even if you own them free and clear.) Other things like a customer list, contracts, proprietary software and systems are called "Good Will". Good Will can be appraised by an experienced broker and added to the value.

(Owners Benefit, Net Profit, Facility, Good Will) * 3 = Value

Lets say you have a business that does $300,000.00 a year at a 25% net profit. They have $150,000 of that in reoccurring revenue secured by contracts(of which you figure the net profit on those jobs and add it to the formula not the entire gross of the contracts, however that is figured into the net profit of the company and really only strengthens the potential sale of the company). They have a facility that is worth $200,000 that has a net equity after appraisal of $50,000, The owner gets a $75,000 salary and has two vehicle payments, gas, health insurance, etc. How would that formula look and what would the business be worth.

[($75,000net, $100,000ob * 3) + ($50,000fac, $37,000rr, $10,000gw)] = $622,000.00

Now this is your asking price and don't get your heart set on it. If someone came and offered you an all cash deal they would expect a substantial discount. If they had a smaller down payment and you were assuming some risk carnying a note then you would get closer to your asking price. Some larger companies buy out smaller ones and offer a deal that looks like a down payment, 2 year contract to help operate the company and stock and or stock options in the new corporation to season out the deal.

I didn't vote for an amount to value the business at the top of this post because I didn't know enough about the business to value it.

I hope these formulas and explanations help you in valuing your business and hopefully the businesses you will buy and sell in the future.

AC