Business Valuations

Thinking of selling your business? First you’ll need to complete a business valuation. Determining the value of your company and understanding how to calculate business value is critical when planning your ‘exit strategy’. Once you have made the decision to sell your business, setting the list price on your company that is too high, may scare away buyers and you may never sell your business. Conversely, setting a price that is too low, may be cheating you out of your hard-earned dollars. MBA Associates has completed over 75 successful business valuations for our Edmonton area clients.

Business Valuations take the mystery out of valuating your business. It is also the single most important step when you as a business owner are ready to sell your business to outside interests or pass it on to the next generation – it is called Succession Planning & Exit Strategy.

Methodology

SDE -- Seller's Discretionary Earnings

SDE / Price Multiple -- Price divided by seller's discretionary earnings.

  • Seller's discretionary earnings (SDE) is defined as net income before the primary owner's compensation, other discretionary, non-operating, or non-recurring income or expenses, depreciation, interest, and taxes.

  • What is included in the price determined by these multiples?
    The price determined by these multiples includes intangible assets (such as brands, copyrights, trademarks, patents, licenses, franchises, customer lists, and goodwill), and furniture, fixtures, and equipment. It does not include cash, accounts receivable, inventory, real estate, other tangible assets, or liabilities, so these items must be added or subtracted, as applicable, in arriving at the indicated equity value for the business.

  • How do I determine the equity value of the business?
    The equity value of the business is determined by multiplying revenue or seller's discretionary earnings (SDE) by the corresponding multiple and adding or subtracting, as applicable, cash, accounts receivable, inventory, real estate, other tangible assets, and liabilities.

  • For Business Brokers, who may be working with you in an effort to find a qualified buyer for your business, seller's discretionary earnings (SDE) is the methodology of choice for the seasoned professional.

 

Business Valuations

Thinking of selling your business? First you’ll need to complete a business valuation. Determining the value of your company and understanding how to calculate business value is critical when planning your ‘exit strategy’. Once you have made the decision to sell your business, setting the list price on your company that is too high, may scare away buyers and you may never sell your business. Conversely, setting a price that is too low, may be cheating you out of your hard-earned dollars. MBA Associates has completed over 75 successful business valuations for our Edmonton area clients.

Business Valuations take the mystery out of valuating your business. It is also the single most important step when you as a business owner are ready to sell your business to outside interests or pass it on to the next generation – it is called Succession Planning & Exit Strategy.

Methodology

SDE -- Seller's Discretionary Earnings

SDE / Price Multiple -- Price divided by seller's discretionary earnings.

  • Seller's discretionary earnings (SDE) is defined as net income before the primary owner's compensation, other discretionary, non-operating, or non-recurring income or expenses, depreciation, interest, and taxes.

  • What is included in the price determined by these multiples?
    The price determined by these multiples includes intangible assets (such as brands, copyrights, trademarks, patents, licenses, franchises, customer lists, and goodwill), and furniture, fixtures, and equipment. It does not include cash, accounts receivable, inventory, real estate, other tangible assets, or liabilities, so these items must be added or subtracted, as applicable, in arriving at the indicated equity value for the business.

  • How do I determine the equity value of the business?
    The equity value of the business is determined by multiplying revenue or seller's discretionary earnings (SDE) by the corresponding multiple and adding or subtracting, as applicable, cash, accounts receivable, inventory, real estate, other tangible assets, and liabilities.

  • For Business Brokers, who may be working with you in an effort to find a qualified buyer for your business, seller's discretionary earnings (SDE) is the methodology of choice for the seasoned professional.

 

 

 Valuation Formula

Valuation Formula

  Revenue or SDE
x Valuation multiple
  Intangible assets and furniture, fixtures, and equipment
+ Cash
+ Accounts receivable
+ Inventory
+ Real estate
+ Other tangible assets
- Liabilities
 

Indicated Equity Value

 

Valuation Formula

  Revenue or SDE
x Valuation multiple
  Intangible assets and furniture, fixtures, and equipment
+ Cash
+ Accounts receivable
+ Inventory
+ Real estate
+ Other tangible assets
- Liabilities
 

Indicated Equity Value

 

 


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