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FBB eNewsJuly 2011
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First Business Brokers, Ltd.

719/635-9000

800/395-7653

Email: [email protected]

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Greetings!  

 
 
     We are frequently asked by business owners and their advisors if there is a quick formula to determine what a business is worth.  In reality, the valuation of a business is a complex undertaking and the market ultimately determines value.  Although strategic buyers will often pay a premium price for a business, our experience has shown that there are three key components that are used in computing valuation models:  1) earning power; 2) value of the assets being sold; and 3) marketplace demand. 

 

     Earning power is a function of annual earnings.  For larger businesses, particularly those with audited financial statements, an EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) calculation is used.  For smaller businesses, the calculation is adjusted by adding back the expenses attributable to private ownership.  (At FBB, we use the term "Adjusted Profit" to describe that concept.)  An appropriate capitalization rate is then applied to calculate value.  Most investors place extensive weight on the company's ability to generate earnings, since the cash flow allows them to: 1) pay themselves a suitable salary; 2) pay off the debt generally required to buy the business; and 3) receive a return on investment.  The appraised or fair market value of the assets being transferred is also considered.  These factors are overlaid on industry and market conditions to come up with a range of value for the business.  Due to the complexity of the process, we typically place little value on industry rules of thumb. 

  

     Please consider referring our services if you encounter a situation involving the potential purchase or sale of a business.
 

Sincerely,

  RV Chernak Signature

Ronald V. Chernak

President

 

   

Inspiring business relationships since 1982!

 

 

 

 

 

 

 

 

 

 

 

 

FEATURED CLIENTS 

Niche Manufacturing

Profile #309 

This well-established business has a solid reputation in its industry, manufacturing specialized containers for government contractors.  Engineering services are available to assist with equipment design and prototype development.  Substantial barriers to entry into the industry.  There is a well-trained staff in place and significant opportunities for long term growth.  Two locations, one of which is availabel to purchase with the business for an additional $495,000 (subject to appraisal).  Owner retiring.

  

   3 Year Average

Gross Sales.............$1,352,591

Adjusted Profit...........$270,897

 

Contact Lynn Lage, [email protected].  (Business Summary)   


Upscale Pet Daycare & Boarding

Profile #911 

Be part of the $45 billion pet industry by owning one of the country's most profitable, leading boarding facilities.  Located in the popular and growing Carolinas, this company is very well established in a high income community.  There are high profit margins with a solid cash flow for owner's salary and ROI of 27% and it qualifies for a long term SBA-guaranteed loan.  Opportunity for further growth and experienced, long-term employees in place.  Profits are up 6% for January - April 2011 over last year's same period.

  

Gross Sales...............$997,472

Adjusted Profit..........$312,444

 

Contact Ron Brasch, [email protected].  (Business Summary