What Is Your Business Worth?

If you get the price or the timing wrong, you may have to maintain the business longer than planned; or make uncomfortable adjustments to finally get the deal done.

I help sellers understand the data that goes into pricing a company and explain how buyers think when considering a business purchase opportunity.

From there, a financial analysis is done to determine the true, unadjusted net profit from income tax returns financial statements and not forgetting to include a thorough look at the balance sheet at several different timelines.

Unfortunately, there is plenty of bad advice out there, and it’s easy to get excited about numbers that just aren't realistic.

I help owners understand the data that goes into pricing a company and understand how buyers think when they’re considering an opportunity.

That’s our starting point.

I explain that without these assets, there would be no way of making money, so they’re factored into the total business value and not as a separate line item.

I consider the health of the cash flow and whether revenue is trending up or down or staying flat over the past few years, a separate consideration from the raw sales numbers.

If we put a company on the market at an unrealistically high price, we wind up selling other people’s companies for them; buyers will look at two similar companies and choose the one that looks like the better value every time.

Once he starts thinking about his aging truck fleet, the lease agreement that expires next fall, and other upgrades that a new owner will have to make, we usually get back to a number we can both live with or agree to part ways on good terms.

If I hired another estimator, I could get my bids out in 24 hours instead of taking three days. You get the idea.

When you’re ready to exit, hiring a business broker should be your first move.

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Joe Shemansky     11/03/2022

What Is Your Business Worth?

When you’re thinking about selling, the most obvious question is always, “what is my business worth?” My goal is to help you get the definitive answer to that question.  The key is to take your business to market at an acceptable price range to ensure it will sell.  If you get the price or the timing wrong, you may have to maintain the business longer than planned; or make uncomfortable adjustments to finally get the deal done.

Deciding what your business is worth is essential. However, it can often be challenging for a business owner to be objective.  Most sellers have a number in mind of what they want to sell their business for.  Sometimes, they will base this number on what they need to get to retirement.  Often, that number might be based on their own “research” on the web.  While there may be some good advice, there is 5 to 10 times the amount of bad advice where someone is trying to push a book or a one-size-fits-all approach to selling your business.  Sadly, it’s all too easy to get excited about numbers that just are not realistic.

That’s where a professional business broker comes in. We have the tools, resources, and experience to value your company and analyze the market for your business. I help sellers understand the data that goes into pricing a company and explain how buyers think when considering a business purchase opportunity.

Many factors go into valuing your business in addition to the bottom line, the “true net” for your business, known as Discretionary Earnings (DE).  DE is a calculation of the financial benefit a full-time owner and operator would derive from their business annually, based upon the cash and benefits received from ownership.  The first thing on my list is to look at a minimum of the last three and, in some cases, five years’ financials to determine the financial health and strength of the business.  From there, a financial analysis is done to determine the true, unadjusted net profit from income tax returns financial statements and not forgetting to include a thorough look at the balance sheet at several different timelines.

Deciding what your business is worth is important, but it can be hard for an owner to be objective. Most owners have a number in mind for a sale price. Sometimes, it’s based on the number they need to get to retirement. Sometimes, it’s based on their own research on the web. Unfortunately, there is plenty of bad advice out there, and it’s easy to get excited about numbers that just aren’t realistic.

That’s where professional business brokers come in. We have the tools, the resources, and the experience to value your company and analyze the market for your business. I help owners understand the data that goes into pricing a company and understand how buyers think when they’re considering an opportunity.

Many factors go into valuing your business in addition to the bottom line, the “net” for your business, known as seller’s Discretionary Earnings, or SDE. SDE is a calculation of the financial benefit a full-time owner and operator would derive from their business on an annual basis. I look at the last few years of financials to determine net profit from income tax returns plus depreciation, amortization, interest, non-operating income and expenses, non-recurring income and expenses, and the owner’s or manager’s compensation. That’s our starting point.

There are plenty of other factors that impact the company’s value, of course. The condition and age of equipment, vehicles, facilities, and infrastructure. Sometimes, owners get stuck on the value of what’s labeled FF&E – furniture, fixtures, and equipment.  They think these items should be priced outside the company’s essential value, but that’s where conversation and education can be helpful again. I explain that without these assets, there would be no way of making money, so they’re factored into the total business value and not as a separate line item.

I also factor in things like patents, proprietary processes or systems, and intellectual property, if the owner has any. I look at the efficiency of the operations, the workforce, and how involved the owner is in day-to-day operations (the less, the better, for buyers.) I consider the health of the cash flow and whether revenue is trending up or down or staying flat over the past few years, a separate consideration from the raw sales numbers. 

How you’re making money is almost as important as how much money you’re making. If your revenue is concentrated in just a few customers or a single market, that could look risky for a buyer. On the other hand, if you have contracts in place that guarantee revenue over the next few months or years, that could increase the value of the business. 

Then we turn to the art of business valuation: determining the multiples. My opinion will be based on data from comparable companies in comparable markets, using industry standards and respected benchmarking resources like the Business Reference Guide and BizMiner. I work hard at getting the price right, based on real world numbers. If we put a company on the market at an unrealistically high price, we wind up selling other people’s companies for them; buyers will look at two similar companies and choose the one that looks like the better value every time.

Finally, if the business owner’s hoped-for price and my valuation are still too far apart, I ask the owner to do a gut check. What would you be willing to offer for this business if you were buying it today? Once he starts thinking about his aging truck fleet, the lease agreement that expires next fall, and other upgrades that a new owner will have to make, we usually get back to a number we can both live with or agree to part ways on good terms.

I work at educating buyers as well. They’re often looking for bargains, so it’s my job to help them understand everything that goes into the value of a particular company; all that up front research and due diligence pays off during negotiations as well.

All buyers want a company that still has the potential for growth, a company they can have an impact on. I always have a conversation with the owner about what he’d do with the business if he had the time, energy, or money, and I use those ideas to help the buyer see potential. With another crew and truck, I could go after this contract… If we could open another location in the next town over, I could increase sales by about 30 percent… If I hired another estimator, I could get my bids out in 24 hours instead of taking three days. You get the idea.

I love what I do. Knowing what your company is worth and when is the right time to sell are crucial to getting the most value from your business. When you’re ready to exit, hiring a business broker should be your first move.


This blog was originally written by Joe Shemansky, MCBI, M&AMI, CM&AP, CBI. Joe is the Principal Broker-Owner of We Sell Construction Businesses (www.wesell construction businesses.com), which is headquartered in Clermont, Florida. We Sell Construction Businesses provides business brokerage and M&A transaction services to main street and lower middle market construction business owners, looking to sell their businesses. He can be contacted at 352-404-9191 or joe@wesellconstructionbusinesses.com.

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