Edison Business Advisors offers the following valuation services:
- Broker's Price Opinions
- Certified Business Appraisals
- Equipment Appraisals
In general, there are three approaches to valuing a business, i.e., Market Approach, Income Approach, and Asset Approach. Combined these approaches have eight methods for valuing a business, e.g., Direct Market Data Method, Multiple of Discretionary Earnings Method, Excess Earnings Method, etc.. When valuing a business, we may combine any number of these eight methods to calculate value depending upon the seller's particular situation (see Valuation Methodology for more information).
There are many valuation tools to assist in valuing a business, i.e., sold databases and valuation software. Sold databases include DealStats, BizComps, PeerComps, and BBF MLS. Valuation software is offered by BizComps, PeerComps, and a number of other sources. We use these tools to calculate a Most Probable Selling Price (MPSP).
- Direct Market Data Method
- Guideline Public Company
- Mergers & Acquisitions
- Capitalization of Benefits
- Discounted Future Benefits
- Multiple of Discretionary
Earnings (DE) Method
- Net Asset Accumulation
- Excess Earnings Method
- BBF MLS
- Proprietary Tools
ADJUSTMENTS to MPSP
- Buyer Perceived
- Fair Compensation
- Debt Coverage
- Return on Investment
Adjustments need to be made to the MPSP based on a number of risk factors that can affect the value of the business. Some of the more important risk factors include the reliance on the owner and/or a few key employees, a concentration of sales in one or a small number of customers, age and quality of assets, inventory adjustments, and lack of diversification in product selection or geographic areas served. Other important value factors include the state of the industry, the stage of the business life cycle, and susceptibility to changes in laws and regulations that affect the business. There are up to fifty-four risk factors to analyze to determine the adjustments.
Finally, we test the adjusted MPSP with two tests. The first test is to ensure the deal will qualify for a loan as per the Small Business Association loan guidelines. The second test is to ensure the buyer is able to pay themselves a fair compensation for their time, adequately cover their debt, and provide a strong ROI based on the risk incurred when acquiring a specific business.
Most certified and/or trained business brokers are capable of providing a ballpark estimate of business market value.
CERTIFIED BUSINESS APPRAISALS
For valuations requiring a greater level of detail or being used for litigation support, engaging a certified business appraiser is highly recommended. Certified appraisals are required to follow the Uniform Standards of Professional Appraisal Practice Standards (USPSP). To learn more about how a certified business appraisal is conducted, go to our Valuation Methodology page.
If you have questions about the different approaches, methods, and tools of valuation and which ones may be appropriate for you or have questions about a certified business appraisal, please contact us for a complimentary, confidential consultation.
Main Street and Lower-Middle-Market Businesses
- CORPORATE OFFICE
- 8891 Brighton Lane, Suite 105
- Bonita Springs, Florida 34135