What is my business worth? How much will someone pay me for the business I created? Until recently most body shop owners did not think of such things. But then consolidation took off and it is the buzz of the industry. As a shop owner stated to me, consolidation gives average guys who fix cars the chance to sell their business for lots of money.
In the first weeks of this year alone I have heard from scores of owners asking ‘what is my business worth’. Perhaps it is the many big deals that have been announced in the past few months. Perhaps as an industry we all really are just getting older. Or that the industry is getting more challenging. Maybe the stock market jitters have all of us concerned.
Regardless, the question appears to be on everyone’s mind.
3 Traditional Approaches
One of the first things we do when working with clients (helping them sell or helping them expand) is to perform a business valuation. Valuations are important because they set a baseline. It answers the question ‘what is my business worth’. How do you know where to start negotiations unless you know what you are reasonably worth? How do you measure success unless you know where you started?
There are three traditional ways to determine the value of your business (I discussed these methods in more detail in this article):
- Discounted Cash Flow (DCF)
- Market Multiples and Comparable Transactions
- Asset Values
By far the most commonly referenced approach is the Market Multiples and Comparable Transactions method (although savvy buyers and sellers rely on all three, plus additional metrics). Simply put, this method looks at the selling prices for other businesses in your peer group and then applies the same relative valuation to your business. So if Bob down the street sold for three times EBITDA, or 40% of Sales, you use the same metrics to estimate your value.
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