ForumsAccounting and Budgeting

The main factors seem to be the type of business, competitive position, market pressure, and earnings. For a service business where the owner basically IS the business, the valuation-to-profit ratio may only be 1:1. For an established light manufacturing business with stable management, fixed assets, a strong market position, limited competition, and continued earnings that do not depend on any one person, skill, or product, the ratio may be as high as 10:1. One problem is that the financial statements for many small businesses don't really show an accurate earnings picture.

I've done valuations in the past, mainly for larger businesses, though. You can get very complex in your financial analysis, even for a small company.

My father, however, recently sold his business after 20 years (and subsequently purchased another, smaller version of the same business). Both businesses would have been considered small, though. He did enlist the aid of an accountant and an attorney in both cases, and the valuations that were produced for both transactions were derived from comparisons to similar businesses.

In a nutshell, the type of business (a veterinary hospital in both cases), drove the valuation. The valuation expert had a database of similar transactions, and applied a range of multiples to calculate base case, high and low valuations. Depending upon whether you're the buyer or the seller, you'll use the high or low valuations as your opening offers in negotiation. You can use the base case to evaluate the final decision. You'll be hard-pressed to do this type of valuation on your own because you won't have access to comparables, so I'd suggest, if you're serious about selling/buying, hiring someone with some experience in your industry - probably an accountant or banker.

Good luck.

Just checking in. Bring us up to date. Have any of these suggestions been of help??
What is happening?? LUCKIEST