Valuating a business is the first step in taking a business to market. The first step to performing a valuation is to analyze the company’s financials. We require three years of profit and loss statements, three years of tax returns, a balance sheet and an asset list. If we are evaluating a business after the first quarter of the year, we also request a year-to-date comparison from the previous year to the current year. These documents create the cornerstone of any valuation and provide a good snapshot of how financially healthy a business is.
The next step is to assess the real estate, if applicable. If there is a lease involved, the lease is analyzed for a variety of items including the length of term remaining, actual rent vs market rent, assignability and options to renew. Oftentimes, there is added value to the business if the lease rate is under market and is assignable.
If the real estate is owned, we perform a separate valuation that is created in tandem with the business valuation. The real estate valuation will show comps of recently sold properties from both an owner-user and an investment standpoint. It is vital that the real estate be correctly assessed as it is often the asset with the highest value in a business sale.
The final step is to assign a value to the furniture, fixtures and equipment (FFE), leasehold improvements (if any), inventory, accounts receivables and goodwill (and any other pertinent assets or liabilities).
We generate three values for every business. The first value is the book value is based on industry multipliers. The second value is what the business should list for, based on comparable businesses for sale on the market blended with the book value. The third value is what we believe the likely selling price of the business will be based on sold comparables. If a seller agrees with our findings and the listing price, we take the business to market and start the next phase of the marketing, negotiating and disposition process.