Comments on: Ready to sell? How to price your business http://smallbusiness.blogs.cnnmoney.cnn.com/2009/07/07/ready-to-sell-how-to-price-your-business/ Editors from FSB magazine answer your pressing small-business questions. Tue, 15 Dec 2009 12:52:55 +0000 http://wordpress.com/ hourly 1 By: somaie,bangalore and karnataka http://smallbusiness.blogs.cnnmoney.cnn.com/2009/07/07/ready-to-sell-how-to-price-your-business/#comment-2125 somaie,bangalore and karnataka Tue, 15 Dec 2009 06:33:07 +0000 http://askfsb.blogs.fsb.cnn.com/?p=1073#comment-2125 According to the study, the most important tool for small businesses to succeed in 2010 is search engine marketing, while email marketing, public relations and social media cited as crucial for success. 23.8% of all small businesses reported that search engine marketing was the tool most needed for their business to succeed in 2010. www.onlineuniversalwork.com According to the study, the most important tool for small businesses to succeed in 2010 is search engine marketing, while email marketing, public relations and social media cited as crucial for success.
23.8% of all small businesses reported that search engine marketing was the tool most needed for their business to succeed in 2010.
http://www.onlineuniversalwork.com

]]> By: mitch Gold, Toronto Canada http://smallbusiness.blogs.cnnmoney.cnn.com/2009/07/07/ready-to-sell-how-to-price-your-business/#comment-1972 mitch Gold, Toronto Canada Fri, 25 Sep 2009 03:06:53 +0000 http://askfsb.blogs.fsb.cnn.com/?p=1073#comment-1972 Is capitalism dead? I believe your evaluator - ignores the realities of the day - and comes up with a number that will not offend any one's sensitivities except mine. the number of questions I would have would create a book and may enlighten some - but is not worth the effort. I would rather chew nails. Capitalism is dead for those that do not know it - and has been dead since 1926 - but the economists choose to call state socialism - capitalism and every body feels better. and my dentist too. Is capitalism dead?

I believe your evaluator – ignores the realities of the day – and comes up with a number that will not offend any one's sensitivities except mine.

the number of questions I would have would create a book and may enlighten some – but is not worth the effort. I would rather chew nails.

Capitalism is dead for those that do not know it – and has been dead since 1926 – but the economists choose to call state socialism – capitalism and every body feels better. and my dentist too.

]]> By: Kevin, Daytona Beach, Florida http://smallbusiness.blogs.cnnmoney.cnn.com/2009/07/07/ready-to-sell-how-to-price-your-business/#comment-1922 Kevin, Daytona Beach, Florida Tue, 28 Jul 2009 17:10:58 +0000 http://askfsb.blogs.fsb.cnn.com/?p=1073#comment-1922 It would seem to me that calculating the apparent SDCF would be the most beneficial to do, that is, when even examining the thought of selling an assets. Especially in this economy, the brokerage firm and business valuation company may grade your business with a extremely low SDCF muiltplier; not only driving away the buyers, but you as well. In my opinion, exiting this recession, banks and privitized small capital loan companies are going to be very inparticular on economic conditions from the past. Like mentioned here before, if not impossible, it will be extremely difficult to get the muiltiplier to a reasonable price, as well as a bank to hang out a business loan; especially, when the business has been or can be affected by the condition of the economy. It would seem to me that calculating the apparent SDCF would be the most beneficial to do, that is, when even examining the thought of selling an assets. Especially in this economy, the brokerage firm and business valuation company may grade your business with a extremely low SDCF muiltplier; not only driving away the buyers, but you as well. In my opinion, exiting this recession, banks and privitized small capital loan companies are going to be very inparticular on economic conditions from the past.

Like mentioned here before, if not impossible, it will be extremely difficult to get the muiltiplier to a reasonable price, as well as a bank to hang out a business loan; especially, when the business has been or can be affected by the condition of the economy.

]]> By: Chris, Omaha NE http://smallbusiness.blogs.cnnmoney.cnn.com/2009/07/07/ready-to-sell-how-to-price-your-business/#comment-1913 Chris, Omaha NE Mon, 20 Jul 2009 01:25:03 +0000 http://askfsb.blogs.fsb.cnn.com/?p=1073#comment-1913 Yes, but you won't have an established business with staff and kids. Building that from scratch will take time with a whole other set of risks. Yes, but you won't have an established business with staff and kids. Building that from scratch will take time with a whole other set of risks.

]]> By: Cal, Deer Isle ME http://smallbusiness.blogs.cnnmoney.cnn.com/2009/07/07/ready-to-sell-how-to-price-your-business/#comment-1905 Cal, Deer Isle ME Fri, 17 Jul 2009 04:21:52 +0000 http://askfsb.blogs.fsb.cnn.com/?p=1073#comment-1905 By far the best comment. Most people seeking to buy a business even if it is expansionary seldom have their own cash. With the exception of flamboyant investment bankers looking to generate high fee income no bank will ever loan for goodwill of which a day care is mostly goodwill. On top of which the buyer will need 30% down with few exceptions as well as 3-6 operating cash. If the buyer will be leaving his current job the cash flow will be critical. A smart buyer will look at the number of hours worked at "X" dollars per hour before seeing what the ROI is projected to be. I am an accountant who has bought and sold over 100 businesses and the fact is 90% of sellers far over value the business exspecially when useing a business broker. Unless you are ready to retire or sick of the work you are better of keeping the business By far the best comment. Most people seeking to buy a business even if it is expansionary seldom have their own cash. With the exception of flamboyant investment bankers looking to generate high fee income no bank will ever loan for goodwill of which a day care is mostly goodwill. On top of which the buyer will need 30% down with few exceptions as well as 3-6 operating cash. If the buyer will be leaving his current job the cash flow will be critical. A smart buyer will look at the number of hours worked at "X" dollars per hour before seeing what the ROI is projected to be. I am an accountant who has bought and sold over 100 businesses and the fact is 90% of sellers far over value the business exspecially when useing a business broker. Unless you are ready to retire or sick of the work you are better of keeping the business

]]> By: Anonymous http://smallbusiness.blogs.cnnmoney.cnn.com/2009/07/07/ready-to-sell-how-to-price-your-business/#comment-1904 Anonymous Thu, 16 Jul 2009 11:56:56 +0000 http://askfsb.blogs.fsb.cnn.com/?p=1073#comment-1904 Matt,What article did you read??? Matt,What article did you read???

]]> By: Dave, Grand Rapids, MI http://smallbusiness.blogs.cnnmoney.cnn.com/2009/07/07/ready-to-sell-how-to-price-your-business/#comment-1899 Dave, Grand Rapids, MI Thu, 09 Jul 2009 19:42:24 +0000 http://askfsb.blogs.fsb.cnn.com/?p=1073#comment-1899 An alternative method of valuation on a day care facility (other than SDC as was fully explained in the article already) is using the number of children cared for. SBA uses a valuation of somewhere between $1,000 to $2,000 per child. Obviously you'd be nearer the lower end of this if you were counting soratic clients, and nearer the higher end if you're counting long-term clients. Realistically, if the buyers need to get a loan to purchase the business, their lender is going to ask them to negotiate a price which can be paid back over 7-10 years at the maximum. Five years is probably a bit more reasonable. This, more often than not, is what your business is worth - not an esoteric valuation derived by highly paid accountants and valuation specialists. Back into a value by using a 5-7 year repayment on the sales price at a market rate in your area. Unfortunately, too many valuation specialists value businesses too highly for skittish bankers, and therefore the business never sells unless you can find someone with all cash. Those folks are becoming harder to find, so assume your buyer will need a loan for the majority of the purchase, and use my method to back into a price. In many ways it similar to SDC, but gives you a better multiplier than the 1-2.5X offered by the writer. An alternative method of valuation on a day care facility (other than SDC as was fully explained in the article already) is using the number of children cared for. SBA uses a valuation of somewhere between $1,000 to $2,000 per child. Obviously you'd be nearer the lower end of this if you were counting soratic clients, and nearer the higher end if you're counting long-term clients. Realistically, if the buyers need to get a loan to purchase the business, their lender is going to ask them to negotiate a price which can be paid back over 7-10 years at the maximum. Five years is probably a bit more reasonable. This, more often than not, is what your business is worth – not an esoteric valuation derived by highly paid accountants and valuation specialists. Back into a value by using a 5-7 year repayment on the sales price at a market rate in your area. Unfortunately, too many valuation specialists value businesses too highly for skittish bankers, and therefore the business never sells unless you can find someone with all cash. Those folks are becoming harder to find, so assume your buyer will need a loan for the majority of the purchase, and use my method to back into a price. In many ways it similar to SDC, but gives you a better multiplier than the 1-2.5X offered by the writer.

]]> By: Daddy, Lexington, KY http://smallbusiness.blogs.cnnmoney.cnn.com/2009/07/07/ready-to-sell-how-to-price-your-business/#comment-1896 Daddy, Lexington, KY Wed, 08 Jul 2009 21:25:32 +0000 http://askfsb.blogs.fsb.cnn.com/?p=1073#comment-1896 The $35,000 / year in this example would be the profit. You would pay your salary out of the gross income. The business is a seperate entity and as such would pay you for your services, even if you are the only shareholder. The manager would be included in the payroll. "Say you have utilities, payroll, taxes, insurance and advertising costs of $65,000." The $35,000 / year in this example would be the profit. You would pay your salary out of the gross income. The business is a seperate entity and as such would pay you for your services, even if you are the only shareholder. The manager would be included in the payroll.

"Say you have utilities, payroll, taxes, insurance and advertising costs of $65,000."

]]> By: ownedmybusiness31yrs, Denver, CO http://smallbusiness.blogs.cnnmoney.cnn.com/2009/07/07/ready-to-sell-how-to-price-your-business/#comment-1895 ownedmybusiness31yrs, Denver, CO Tue, 07 Jul 2009 22:20:11 +0000 http://askfsb.blogs.fsb.cnn.com/?p=1073#comment-1895 I don't see the value of the owner's time spent at work here. How many hours a week? There is a huge difference in 10 hours a week of purely management expertise to manage a business that largely runs itself as compared to the usual small business owner who is putting in 50 hours a week as bookkeeper, tax accountant, janitor, substitute child care worker, driver, etc. in which case the buyer is really buying themselves a hard job, so investing up to $230,000 to work 50 hours a week for $35,000 a year is not attractive. If we can't put a number to the owner's contribution to the business then we really do not know if it truly is profitable, or not. I don't see the value of the owner's time spent at work here. How many hours a week? There is a huge difference in 10 hours a week of purely management expertise to manage a business that largely runs itself as compared to the usual small business owner who is putting in 50 hours a week as bookkeeper, tax accountant, janitor, substitute child care worker, driver, etc. in which case the buyer is really buying themselves a hard job, so investing up to $230,000 to work 50 hours a week for $35,000 a year is not attractive. If we can't put a number to the owner's contribution to the business then we really do not know if it truly is profitable, or not.

]]> By: Brad, Myrtle Beach, SC http://smallbusiness.blogs.cnnmoney.cnn.com/2009/07/07/ready-to-sell-how-to-price-your-business/#comment-1894 Brad, Myrtle Beach, SC Tue, 07 Jul 2009 20:40:25 +0000 http://askfsb.blogs.fsb.cnn.com/?p=1073#comment-1894 Another thought in valuation might be to determine a reasonable return on investment. So, if a buyer wanted to see a 15% annual ROI, they might look at $35,000/.15 = ~$230,000. If you knew you could put away $230k and get a 15% return, would you? Many people would. Any valuation needs to consider other factors too of course, like the stability of the company; belief that NI will remain or increase over time; growth trends over the past five years; growth trend for the current year; etc. Another thought in valuation might be to determine a reasonable return on investment.

So, if a buyer wanted to see a 15% annual ROI, they might look at $35,000/.15 = ~$230,000.

If you knew you could put away $230k and get a 15% return, would you? Many people would.

Any valuation needs to consider other factors too of course, like the stability of the company; belief that NI will remain or increase over time; growth trends over the past five years; growth trend for the current year; etc.

]]> By: Sandy, Newport News, VA http://smallbusiness.blogs.cnnmoney.cnn.com/2009/07/07/ready-to-sell-how-to-price-your-business/#comment-1893 Sandy, Newport News, VA Tue, 07 Jul 2009 20:34:51 +0000 http://askfsb.blogs.fsb.cnn.com/?p=1073#comment-1893 So, the sell price would be $70,000 plus the equipment? You could start up on your own for less than that. So, the sell price would be $70,000 plus the equipment? You could start up on your own for less than that.

]]> By: Brad Austin, TX http://smallbusiness.blogs.cnnmoney.cnn.com/2009/07/07/ready-to-sell-how-to-price-your-business/#comment-1892 Brad Austin, TX Tue, 07 Jul 2009 19:45:38 +0000 http://askfsb.blogs.fsb.cnn.com/?p=1073#comment-1892 This is the best write-up I've found on evaluating a businesses worth: http://www.businessbrokers.net/businessvalues.html#basicmethod I have always valued my businesses at 3-5 times the excess earnings of the company + FMV of the companies assets. This is the best write-up I've found on evaluating a businesses worth:
http://www.businessbrokers.net/businessvalues.html#basicmethod

I have always valued my businesses at 3-5 times the excess earnings of the company + FMV of the companies assets.

]]> By: Rick S., Boston MA http://smallbusiness.blogs.cnnmoney.cnn.com/2009/07/07/ready-to-sell-how-to-price-your-business/#comment-1891 Rick S., Boston MA Tue, 07 Jul 2009 19:11:59 +0000 http://askfsb.blogs.fsb.cnn.com/?p=1073#comment-1891 They did a good job outlining the example for SDCF.. It's high level, but directional correct. To put some numbers to the calculation, say you have a business that generates $140,000 in gross income. Your cost of goods was $40,000. That means your gross income before expenses is $100,000. Then, subtract your expenses. Say you have utilities, payroll, taxes, insurance and advertising costs of $65,000. Personal expenses covered by the business, such as a car payment, health insurance, and travel costs, added another $15,000. For such a business, total expenses would be $80,000. That leaves a net income of $20,000. But adding back the $15,000 in flexible expenses brings the business’s discretionary cash flow, the true net profit, up to $35,000. They did a good job outlining the example for SDCF.. It's high level, but directional correct.

To put some numbers to the calculation, say you have a business that generates $140,000 in gross income. Your cost of goods was $40,000. That means your gross income before expenses is $100,000.

Then, subtract your expenses. Say you have utilities, payroll, taxes, insurance and advertising costs of $65,000. Personal expenses covered by the business, such as a car payment, health insurance, and travel costs, added another $15,000. For such a business, total expenses would be $80,000.

That leaves a net income of $20,000. But adding back the $15,000 in flexible expenses brings the business’s discretionary cash flow, the true net profit, up to $35,000.

]]> By: matt, mobile alabama http://smallbusiness.blogs.cnnmoney.cnn.com/2009/07/07/ready-to-sell-how-to-price-your-business/#comment-1890 matt, mobile alabama Tue, 07 Jul 2009 18:09:08 +0000 http://askfsb.blogs.fsb.cnn.com/?p=1073#comment-1890 No offense, but this article didn't tell anyone anything... I guess it did tell how to arrive at your SDCF, however, I don't remember this being the point of the article. No offense, but this article didn't tell anyone anything… I guess it did tell how to arrive at your SDCF, however, I don't remember this being the point of the article.

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