Expert Business Valuation Course – Market Methods for Small Businesses

Expert Business Valuation Course – Market Methods for Small Businesses

Market Method for Valuing Small Businesses and Advising Buyers and Sellers of Small Businesses are the two of the presentation topics for professional business valuators and financial advisors at an upcoming conference.

Greg Caruso, J.D., C.P.A.,C.V.A. will be presenting two morning continuing education courses at the New Jersey NACVA Conference on Wednesday, November 20, 2019 in Edison New Jersey (registration details below)

The first course, Market Method for Valuing Small Businesses, will cover the market method for use with small business valuation.  Emphasis will be on selection of comparable set, evaluating comparables based on profitability, charting and graphs, use of statistics, reviewing cash flow, estimating the value and, finally, adjusting the value based on balance sheet matters as compared to estimated comparables.

This course is an Intermediate level and attendees will be able to:

  • Identify SIC and NAICS codes and further useful sorts such as revenue and cash flow ranges in order to select valid market comparables
  • Differentiate between when to use SDE and EBITDA as an cash flow measure
  • List the strengths and weaknesses of the market method and how to adjust both the subject company data and the comparable date to reduce error
  • Describe the differences between the way DealStats records asset sales and stock sale transactions
  • Adjust the cash flow value found for variations in balance sheet assets and liabilities.
  • Be able to estimate a business value using the market method

The morning’s second course, Advising Buyers and Sellers of Small Businesses, will review how CPA’s, CVA’s and other advisors can best work with clients who are preparing to buy or sell a business.  Focus will be given to helping the client assess underlying needs and desires so they are prepared for the emotional strain of this type of life change.  Listening skills, negotiation skills, how to work with brokers and other participants will be discussed.

The objectives of this Intermediate level course are to

  • Identify issues and questions that lead to meaningful conversations about plan
  • List the steps in an organized transaction
  • Describe the elements to actively listen and engage with clients
  • List requirements for an SBA loan to finance a business

Click Here to R.S.V.P

Details:

8:00 a.m. to 4:30 p.m. (Continental breakfast,lunch and light refreshments served.)

Location
Hilton Garden Inn – Edison
50 Raritan Center Parkway
Edison, New Jersey 08837

$195

Earn up to 8 Hrs CPE

Click Here to RSVP

Click  here for more about NJ NACVA
Click here for more about NACVA  

 


Greg Caruso is an expert who works throughout the Mid-Atlantic with business owners to create and realize business value through business valuation, succession planning, and private company M&A. He is licensed in Maryland as an Attorney, Certified Public Accountant and Certified Valuation Analyst.
Over the past 15 years successfully completed over 50 business merger or sale transactions
He has been an advisor on acquisitions, exit strategies, and valuations of over 250 firms.
He is Editor-In-Chief of “Around the Valuation World” the two most interesting hours in business valuation, a monthly webinar produced by the NACVA

 

Small Business Valuation: What is a Valuation Multiplier?

In business valuation for the sale of large and small business, it goes without saying that a business with a multiplier of four is going to be twice as valuable as that same business with a multiplier of two. 

It therefore becomes extremely important to select the correct multiplier when valuing a business.  If you choose a  wrong multiplier you will only be fooling yourself as most Buyers are well informed by the time they buy.

The average multiplier for all businesses with a value below one million dollars is between 2.3 and 2.7 depending on the database source.  This multiplier is applied or multiplied against what is known as Owner’s Discretionary Earnings. Owners Discretionary Earnings is every way the owner makes money i.e.  Owner’s Salary, Owner’s Benefits, Profits, One time expenses, plus Interest and Depreciation.

Want to know more?  Please click here for the downloadable e-book. “7 Things You Must Know Before You Order a Business Valuation” 

Small Business Valuation, What is a Valuation Multiplier?

How do I Calculate a Multiplier?

Intensive businesses, such as independent restaurants and auto repairs shops, that tend to wear down an owner often sell for 1.7 to 2.5.  

Profitable retailers often have a multiplier of 2 to 3.  

Service businesses with repeat customers sell around 3. 

Businesses with long-term contracts such as some government contractors, long-term service contracts, etc. can sell for 4 or more. 

Finally, businesses in very ‘hot’ industries or high growth businesses, such as software companies starting a successful implementation phase, may sell for higher multiples.   Larger and/or more profitable businesses will sell for more than small or less profitable businesses.

Generally, the multiplier is calculated by looking at risk and how the business will continue to generate cash flow for the new owner and the perceived desirability and growth prospects of the firm. 

For small businesses the employment opportunities of the buyer may also be a factor.  (If the owner can make $100,000 per year as an employee they may be less likely to buy a business generating $75,000 of discretionary earnings).  This is similar to the concept behind bonds or bank accounts.  Junk bonds pay more interest than government insured savings accounts in order to attract your investment dollar.  Of course, you will never lose principal on the government insured savings account. 

Small businesses are very risky and carry a large discount usually in the 20% to 50% range.  The safer the business the higher the multiplier.  The higher the multiplier the higher the value and price when it comes time to sell.  

Gregory R. Caruso, J.D., CPA, CVA
Harvest Business Advisors
www.harvestbusiness.com
gcaruso@harvestbusiness.com

 

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