Company value?

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Company value?

Postby Ron » Mon May 14, 2018 1:47 pm

I've been in business for 17 years and have been approached by one of the local hvac companies who would like to buy my company. They want a number and while I have an idea of what the equipment is worth, I'm not sure how to price the company itself (customer base, name, reputation, etc.) Any ideas would be greatly appreciated.

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Location: Hickory, PA

Re: Company value?

Postby John Bently » Sat May 18, 2019 10:36 pm

There are a number of ways to value a business and while they all have merit it can be difficult to look at the hard data because there is a personal connection with the owner. In many situations an owner thinks a business is worth more than some may want to pay. Depending on what the situation of the reason for sale is the amounts may be very different.
Some things to think about are:

Income Multiplier
Future Income
Asset Value
Liquidation Value

Income Multiplier: This is fairly basic in that a multiplier of the income is used, it may be 1 to 5 times depending on the business and cash flow.
A business that was generating annual income of $100,000 x 3 = $300,000

Future Income: What does the future look like? While past performance may be an indicator of certain things there are no guarantees.
There may be unseen events that take place with either a positive or negative effect.

Comparison: What are similar companies valued at or selling for. When looking at this you need to consider market area, company size and overhead.
A 20 truck firm is going to have larger numbers than a 3 truck business.

Asset Value: What are the assets of the company worth? There are the vehicles and equipment but also the name, phone numbers and goodwill.
While it's easy to see the hard assets in the parking lot the goodwill can be much more valuable. If everybody in the service area knows that for "the best service"
you call xxx-xxxx and that phone rings 20 times a day with a lot of happy customers, there is value in that.

Liquidation Value: What would it be worth if the business were liquidated. I know of a person who planned for retirement, paid cash for vehicles over the years and
had no debt. When he decided to retire he passed his customers to his "good" competitors in the area, had a party, auctioned off his equipment and walked away.
His biggest concern was that his customers were taken care of and treated well.

When selling a business are you just planning on walking away? Does the new owner want you to remain for 1 - 3 years to make sure of a smooth transition?
Would staying on be part of the sale price or would there be additional salary involved? Are you ready to retire or is it time to seek a new venture?

There are certainly many sources for methods of valuation but remember the most important factor is that the buyer and the seller agree.

John Bently
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Joined: Sat Jun 04, 2005 5:52 pm

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