Valuations

When the stakes are high, you need an advisor you can trust. An advisor with the expertise and resources to provide a credible valuation of a business enterprise or its underlying assets, the industry knowledge to understand how market trends may impact value, an understanding of the applicable legal, tax, or regulatory environment, and the experience to withstand scrutiny.

Transaction Business Investments has helped clients gain confidence by bringing clarity to the most complex valuation matters. We provide specialized experience across a broad spectrum of industries. Whether using EBITDA or SDE, we will consider all factors or a business’s worth today and in the future.

Valuing a small business can be complex. Here's a breakdown of common methods:

1. Asset-Based Approach:

  • Focus: Values the business based on the worth of its tangible and intangible assets.  

  • How it works:

    • Tangible assets: Equipment, inventory, real estate.  

    • Intangible assets: Goodwill, trademarks, patents.  

    • Calculate: Total assets minus total liabilities.  

  • Best for: Businesses with significant physical assets (e.g., manufacturing).  

2. Income-Based Approach:

  • Focus: Values the business based on its earning potential.  

  • Methods:

    • Discounted Cash Flow (DCF): Projects future cash flows and discounts them to their present value.  

    • Capitalization of Earnings: Estimates the value based on a multiple of the business's current earnings.  

  • Best for: Profitable businesses with stable earnings.

3. Market-Based Approach:

  • Focus: Compares the business to similar businesses that have recently sold.  

  • How it works:

    • Find comparable businesses (comps) in the same industry.  

    • Analyze their recent sale prices and key financial metrics (e.g., revenue, profit).  

    • Use this data to estimate the value of your business.

  • Best for: Businesses with readily available comparable sales data.  

Important Considerations:

  • Industry: Valuation methods vary significantly by industry.  

  • Financial Performance: Key factors include revenue, profit margins, growth trends, and cash flow.  

  • Market Conditions: Economic conditions, interest rates, and competition all impact valuation.  

  • Unique Factors: Consider any unique aspects of the business (e.g., strong customer relationships, intellectual property).