Valuing a Business

Last Updated
September 22, 2010

Chapter 3: Valuing Your Business

If using a business broker, it will be down to them to value your business. However, it would still be wise to value the business yourself so that you can relate to the price that the broker has specified. For whatever price they place on your business, you should consult how they arrived at this figure so that you can agree that the price is fair.

Likewise, if you use an accountant to value your business, again you should still value the business yourself so that you can assume that they have given a reasonable and fair value. After all, who knows your business better than you do?

It may be that you decide to value the business alone without the assistance of professionals although it is highly recommended that you use at least one of them. Either way, the following are the most common approaches to valuing a business:

3a) The Multiplier Valuation

This area is very subjective and there will be a variation in people’s attitudes and opinions for the figures involved.

The figures that we have given are USA based and should be used for guid ance purposes only to give you an idea of the differences bet ween industries. The value of the business is derived from the multiplication of a figure (or percentage) and a financial value of the business. Below are multiplication figures that have been supplied by the Business Brokerage Press, located in the USA, from their publication ‘The 2001 Business Reference Guide’.

Type of Business “Rule of Thumb” Valuation
Accounting Firms 100% – 125% of annual revenues
Auto Dealers 2-3 years net income + tangible assets
Book Stores 15% of annual sales + inventory
Coffee Shops 40% – 45% of annual sales + inventory
Courier Services 70% of annual sales
Day Care Centres 2-3 times annual cash flow
Dental Practices 60 % – 70% of annual revenues
Dry Cleaners 70% – 100% of annual sales
Employment & Personnel Agencies 50% – 100% of annual revenues
Engineering practices 40% of annual revenues
Florists 34% of annual sales + inventory
Food/Gourmet Shops 20% of annual sales + inventory
Furniture & Appliance Stores 15% – 25% of annual sales + inventory
Gas Stations 15% – 25% of annual sales + equip/inventory
Gift & Card Shops 32% – 40% of annual sales + inventory
Grocery Stores 11% – 18% of annual sales + inventory
Insurance Agencies 100% – 125% of annual commissions
Janitorial & Landscape Contractors 40% – 50% of annual sales
Law Practices 40% – 100% of annual fees
Liquor Stores 25% of annual sales + inventory
Property Management Companies 50% – 100% of annual revenues
Restaurants (non-franchised) 30% – 45% of annual sales
Sporting Goods Stores 30% of annual sales + inventory
Taverns 55% of annual sales
Travel Agencies 40% – 60% of annual commissions
Veterinary Practices 60% – 125% of annual revenues

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