Valuation of Ongoing Business Concern
Business valuation is a process and a set of procedures used to estimate the economic value of an owner’s interest in a business. Valuation is used by financial market participants to determine the price they are willing to pay or receive to perfect a sale of a business. In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners' ownership interest for buy-sell agreements, and many other business and legal purposes.The
owner of a business is the only person who can determine if and when it is time to sell his/her business. As one decides whether he/she wants to sale
their decision, must include the following issues:
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Is your business an “Ongoing Business
Concern” which your family can manage after you are gone?
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Has your business provided for you and your
family?
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Does your business
have the financial resources to keep up with new technology?
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Do you just want a
change in your lifestyle?
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Will the sell of your
business fund your retirement?
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Every 7 years many
industries go through a metamorphosis.
Is your industry approaching such changes?
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Is your partnership not
working? What is you exit plan?
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Are you just are not
happy with where you business is at this point?
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Have you built a very
successful business and you are ready to sell (cash-out)?
The economic value of each business is
determined by the following issues:
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Business Concept;
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Lease expiration
date;
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MBE, DBE, or WBE
status;
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Minimum Monthly
Rent;
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Net Cash Flow;
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Percentage Rent;
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The life cycle of
your industry;
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The life cycle of
your business;
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The type of industry
(retail, service, food, manufacturing, health, brokerage and others);
and
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Union Relationship.
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Sample Business Valuation
Analysis
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Financial Analysis
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Business Concept
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Hardware Store
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Bar/Rest.
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Coffee Shop
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Gift/Novelty
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Office Supply
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Revenues
Annually
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$875,912
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100.00%
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$1,476,321
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100.00%
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$489,675
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100.00%
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$305,477
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100.00%
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$377,412
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100.00%
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Business
Rent (%)
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$72,666
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8.30%
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$221,448
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15.00%
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$47,198
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9.64%
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$36,578
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11.97%
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$38,876
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10.30%
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Net
Operating Profit
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$98,277
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11.22%
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$202,108
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13.69%
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$40,741
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8.32%
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$22,511
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7.37%
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$31,586
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8.37%
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Net
Cash Flow
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$133,598
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15.25%
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$257,429
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17.44%
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$76,062
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15.53%
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$37,832
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12.38%
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$42,907
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11.37%
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Revenues
PSF Annually
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$350
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$447
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$326
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$310
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$308
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Capital Investment Analysis
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Business Concept
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Hardware Store
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Bar/Rest.
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Coffee Shop
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Gift/Novelty
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Office Supply
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Orig. Capital Invested
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$376,873
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43.03%
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$675,154
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45.73%
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$275,333
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56.23%
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$133,251
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43.62%
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$229,012
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60.68%
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Square Feet Leased
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2,500
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3,300
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1,500
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987
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1,225
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Cost PSF
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$151
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0.02%
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$205
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0.01%
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$184
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0.04%
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$135
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0.04%
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$187
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0.05%
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Orig. Term of Lease
(Years)
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7
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10
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5
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4
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6
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Scenario
#1
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Invmt Recovery Period*
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6
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5
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4
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3
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5
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Estimated Market Value**
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$777,542
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$1,248,532
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$295,120
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$110,090
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$208,097
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Annual Return on
Investment
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17.18%
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20.62%
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25.77%
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34.36%
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20.62%
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Scenario
#2
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Invmt Recovery Period*
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5
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4
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3
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2
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4
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Estimated Market Value**
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$667,992
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$1,029,717
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$228,186
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$75,663
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$171,626
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Annual Return on
Investment
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20.00%
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25.00%
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33.33%
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50.00%
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25.00%
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Scenario
#3
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Invmt Recovery Period*
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2.5
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3
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1.2
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2.4
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5
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Estimated Market Value**
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$344,016
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$795,457
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$94,013
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$93,520
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$220,969
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Annual Return on
Investment
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38.83%
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32.36%
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80.91%
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40.45%
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19.42%
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* The
investment recovery period is the "projected capital return
period."
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** The estimated market value assumes the
concession is an "ongoing business concern" and the concept will
not change.
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Business valuation methods
Normalization of Income (recasting)
Request a Business Valuation
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provide details about the scope of services offered.
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