Business Valuation Raleigh NC
Transworld Business Advisors of Raleigh understands the business valuation process specifically as it relates to the Raleigh market. Last year alone, Transworld Business Advisors helped nearly 2,000 business owners exit their businesses and one of the first steps is an accurate business valuation.
How Much Is My Raleigh Business Worth?
A great question isn't it? Exactly how much is my Raleigh business worth? When someone gets ready to sell their business they often wonder what their business is worth. Typically these business owners call on Raleigh business brokers for their expert assistance and experience.
At Transworld Business Advisors, we have been helping business owners with business valuations and the sell of their businesses for over 40 years. Last year alone we sold nearly 2,000 businesses from every imaginable industry that you can think of.
Calculating a business's worth is typically done using three methods. These business valuation methods look at a businesses income, liabilities and growth trajectory as well as assets, goodwill, location, and many other factors.
Anchors Of Business Valuations
Business valuations are ultimately impacted by multiples of a business's financials. Recently we sold a large computer software company in Raleigh and the multiple of seller's earnings was 4-times. This business sold in less than four weeks. We also recently sold a Raleigh tutoring business that was well established. The multiple for this business was 1.5 times the seller's earnings. Why would one business get a multiple of 4 and the other only a 1.5 for their business valuation?
Most business brokers use tools to look at sold businesses both nationally and regionally to receive industry multiples. All industries are not the same when it comes to business valuation multiples. There are typically three anchors that primarily influence one's business valuation.
- Business Industry - I like to think of business industry multiples in the same way that I think about the NFL & NBA drafts. There are some industries that are 100% first-round picks that receive huge contracts and there are other industries that are 3rd or 4th round picks. If you are curious as to your businesses valuation multiple you should speak with a Raleigh business broker.
- Business Location - Fewer people are looking to buy a business in Winston Salem, NC than in Raleigh, NC. If you own a Raleigh business your business valuation will be influenced by the location of your business. Businesses in Winston Salem sell all the time but the number of businesses that sell is much lower.
- Verifiable Business Financials - Every business that eventually closes goes through an excruciating process called due diligence. If your business has a growing annual revenue year over year then your multiple will be higher. If a business is in a nosedive than the business valuation will be lower for obvious reasons.
Finding A Qualified Buyer
Confidentiality is the primary concern that business owners have when considering the sale of their business. Raleigh business brokers vet buyers through a process that allows sellers to have confidence if the buyers that meet with them. Our business brokers know and understand the value of confidentiality and the need to vet buyers.
Business worth is ultimately realized when sellers are meeting with qualified buyers that can pay the true business valuation. Business brokers typically help sellers realize a 30% profit on the sale of their business.
How Do You Put A Value On A Business?
Putting a business valuation on your Raleigh, NC business can in some ways be compared to putting a valuation on your home in respect to location. In a home sale, location is the key driver of price and it also helps when valuing a business.
Simply put, a business valuation will be higher than a business valuation with equal books in a remote declining location elsewhere. Please note that location is not the primary driver for your business valuation. Location helps but it isn’t primary.
Factors Impacting A Raleigh Business Valuation
· Owner’s Role
· Industry
· Goodwill
· Trained Employees
· Great Books
· Earnings History
· Longevity
· Regional & National Economy
· Client Saturation
· Future Growth
· Local Competition
· Barriers To Entry
A Deeper Look At Each Of These Factors
Owner’s Role – The owner’s role in the business will to some degree impact your business valuation. Many business owners pride themselves on the fact that “they are irreplaceable.” When a business valuation is conducted, being irreplaceable is not good. Lenders do not like the risk of new business owners not being able to transition and lead in their new role as owner.
Industry – It is important for many buyers to think about industries rather than businesses when they are about to purchase a new business. Let’s face it, some businesses simply operate on very tight profit margins. Regardless of how hard a new owner might work there just isn’t a lot of profit left at the end of the year. Industries with great profit margins have high business valuations.
Goodwill – Over time, businesses hopefully build something called “goodwill.” Goodwill includes reputation, repeat clients, strong vendor relations, online reviews, and growing revenue. An accurate business valuation will include a business’s goodwill.
Trained Employees – A strong management team and trained employees will go a long way to impress a new owner and lenders alike. When an existing owner departs, the business is left with the new owner and the staff that is in place. The new owner places a high premium of these employees to keep things running smoothly.
Great Books – Every business deal ends up in due diligence. During due diligence, the potential buyer will see everything and your books had better be good. Good books validate everything that has been stated previously to the potential buyer. If the books are incomplete or inaccurate, there is a chance that the deal will end. Without good books, it is next to impossible to provide an accurate business valuation in Raleigh for our clients.
Earning History – Your books also tell a story that is very important to potential buyers. Buyers want to know the financial history so they can get an idea of how the business is performing. Your business performance directly impacts your business valuation by showing trends or the trajectory of your business.
Longevity – How long have you been in business? Business valuations take this factor very seriously for obvious reasons. Potential buyers consider a business that survived the great recession favorably because they want reassurance that they are buying a strong business.
Regional & National Economies – Just as a business has a life cycle, so do economies. Businesses are positively and negatively impacted by regional and national economies. When the buyer pool is smaller, businesses sell for less money. A business owner would be wise to consider selling their business when the economy is strong and robust.
Client Saturation – If one of your clients makes up 20% or more of your business, your business valuation will be negatively impacted. A new business owner could not survive his debt service if this one client were to leave. Many business valuations like the BOV take client saturation into account for their business valuations.
Future Growth – Potential buyers are attracted to growth opportunities. These growth opportunities are the life-blood for new business owners and when opportunities are present then business valuations are improved.
Local Competition – If you are selling a family-owned hardware store that is sitting next to a Home Depot that is about to open, guess what? Local competition is factored into business valuations for obvious reasons and they cannot be overlooked.
Barriers To Entry – In business terms, this is called a MOAT. In centuries past, large castles had trenched filled with water surrounding them so that enemies could not enter. Business moats are the barriers that keep competition from stealing market share. The harder a business is to enter, the better the business valuation.
3 Methods of Determining Your Business Valuations
There are three commonly accepted business valuations approaches: Asset Approach, Market Approach, and the Income Approach.
· Asset Approach – Values the assets of your business minus liabilities. Some of the methods in this approach are book value, excess earnings, and asset accumulation methods. These values usually mean very little to the market value of most operating businesses. For the most part, the asset approach does not accurately represent the value of an ongoing business that has positive earnings.
· Market Approach - Simply defined, this approach is much like a comparative real estate approach. Like businesses in specific industries look for similar valuations. There are databases that we can research to find multiples of gross sales and earnings to compare for your business valuation. This method can be very reliable in most cases and is a strong indicator of true value.
· Income Approach – Your business valuation is set here by placing a valuation on the current income stream. This approach is a strong indicator of what a business positive income is worth.
Business Valuations Raleigh, NC
Our business valuation experts in Raleigh work with business owners every day helping them determine an accurate business valuation for their businesses. We are local to the Raleigh market. This means that almost all of the business valuations that we conduct are specific to our Raleigh economic market.
Every day we receive phone calls from Raleigh business owners wanting a business valuation. These business owners have worked hard and made tremendous sacrifices to start, grow and maintain their businesses. Many business owners that we speak with affectionately call their business, "Their Baby." You can see why this business valuation isn't exclusively about the numbers.
Like other Raleigh business brokers, we use common approaches for business valuations: Asset Approach, Market Approach, and Income Approach. With more than 10,000 businesses sold, Transworld Business Advisors is the leader in business sells globally.
Business Valuations: Art or Science?
Business owners will often ask two questions:
- What will my Raleigh business sale for?
- When will my Raleigh business sell?
We always tell them that we wished that we had a crystal ball and that we could answer these two questions. So much goes into a business valuation and it truly takes a seasoned expert to help guide the process of obtaining an accurate business valuation. Goodwill, complete financials, location, growth, local competition, and many other factors impact a business's valuation.
How To Position Your Business To Sell
Steps To Selling A Raleigh Business
Transworld Business Advisors of Raleigh helps you answer the question, "How much is your business worth?" For us to do this we will need three years of business taxes and P&L's. Your business valuation will be completed through the use of these numbers. Also, our Raleigh business brokers will need a list of your Furniture, Fixtures, and Equipment as well as a list of current inventory.
We believe that one of the first steps of deciding to sell your business is completing your business valuation. Our local business brokers will then discuss the confidential selling process so that you will understand the process of selling your business.
You can see from the above chart that an accurate business valuation is a foundation for selling your Raleigh business. Without a proper business valuation, there is really no merit for trying to sell your Raleigh business.
Raleigh Business Brokers & Business Valuations
Each year our business brokers work with well over 1,000 buyers in the Raleigh, NC market. Last year, Transworld Business Advisors sold nearly 2,000 businesses. Every single one of these buyers and sold businesses have an intense intersection called Due Diligence. Deals die in due diligence because the numbers and business valuation do not hold up under the microscope of accountants and other advisors.
This is one primary reason that business owners desire the truth in regards to their business valuation.
Confidential Marketing
If you have never seen how businesses are marketing you need to watch this short video and look at these current businesses for sale in Raleigh, NC.
These two examples help business owners concerned about confidentiality see first hand how business for sale in Raleigh are marketed.
If you desire a confidential business valuation contact one of our Raleigh business brokers today. swright@tworld.com
