Business Valuation Calgary Services
What is the ‘right’ price for your business – and why is it the right price? Answering these questions correctly sets the stage for a successful transaction. Pricing your company too high will keep buyers away; pricing it too low will decrease the return on your investment in your business.
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Business valuation is not an exact science. Many factors affect the value of a business including, but not limited to:
- Buyer market
- Stability of labour force
- Customer base
- Owner involvement
- Age of business
- Profitability trend
- Type of sale (asset or share)
- Availability of vendor financing
Determining value requires an understanding of all the possible factors and how they interact with one another. It’s a complicated process, made easier by experience. At The Alberta Business Exchange, we have the experience in business sales in the Alberta market to guide you in establishing a realistic selling price.
Whether you simply want to understand what the value of your business is today for your own information, or if you are in the midst of a partner buyout or re-financing, we can help.
The Art & Science Of Business Valuation
Business valuation is a mix of art and science. The numbers that represent your business are the science; however, the way those numbers are interpreted can be very subjective and depends on several factors.
Whether you are considering selling your business now or sometime in the future, it’s critical that you understand the fundamental factors that a buyer will look at before making an offer. This allows you to position your business to obtain the highest purchase price when the time comes to sell and also gives you peace of mind that you received a fair deal.
The 4 Major Business Valuation Approaches
The most common and most effective method for valuing a business for sale is an earnings-based approach or, more accurately, a cash flow approach.
The logic is simple: buyers want to know what their return on investment (ROI) will be, and the only way they can do that is to estimate what the future cash flow of your business will be once they’ve taken over.
Cash flow is not to be confused with net income (revenue minus expenses). Net income includes expenses that aren’t actually cash, such as depreciation, and other items that aren’t relevant to the buyer.
EBITDA & Seller’s Discretionary Earnings (SDE)
EBITDA and SDE are the most common methods for valuing a business for sale.
EBITDA (Earnings Before Taxes, Depreciation, and Amortization) is the most commonly used method of valuing businesses with revenues of about $1 million and higher, and usually providing products or services to other businesses (B2B). Cash flow is calculated by adding non-cash items—taxes, depreciation, and amortization—to the company’s earnings.
Seller’s Discretionary Earnings is most often used to value “main-street” businesses with revenues less than $1 million. Main-street businesses are typically smaller, local businesses that are owner-managed and cater to consumers (B2C). Cash flow is calculated similarly to EBITDA but the owner’s salary is added back.
We use a normalized EBITDA method because we do not serve main-street businesses.
Business Valuation Report
It’s very easy to get caught up in all the formulas, industry standards, and different business valuation methods. That’s why we designed our ‘Business Valuation Model,’ which is intended to help the average business owner understand how business value is derived in a straightforward and logical way.
After providing more than 5,000 opinions of value over the past decade, we are well positioned to provide you with a comprehensive report on the value of your business. If you would like to know what your business is worth, contact us to order your business valuation report.