What is my business worth? What is the value of a small business? How much money can I sell my business for?
These are all variations of the same question. What is my business worth when it is time to sell it? That is a loaded question.
Recently Pratts Stats a leading business valuation database released information from their database about “retailers” valuations for the period from 1994 through 2014. The database contained 269 entries. Retailers varied from discount warehouse stores to hot tub retailers. Interestingly the database information is quite close to business broker rules of thumb. For most business sellers the valuations are disappointing. According to the data the median multiple of revenue is .42 times. The median multiple of discretionary earnings (all the ways an owner makes money plus depreciation and interest) is 2.21 times. The coefficient of variation for the revenue multiple is 5.47 while for discretionary earnings it is .72. What that means is that the discretionary earnings multiple is a reliable indicator and the revenue multiple is much less reliable. Namely, make money if you want to sell your business for a profit.
We are always available if you would like to have a conversation about the likely value of your business. Please remember though, the devil is in the details.
Harvest Business Advisors
Princeton, New Jersey and Columbia, Maryland