There are many factors involved in assessing the value of a business.
I recently received a phone call from a client asking about selling his business. He heard he could simply sell for 70% of revenue, but so much more goes into valuing a business than a simple multiple of its revenue. Today I want to briefly discuss how RBA values your business.
First, we review historical profit trends. We want to make sure trends are improving or at least stable. Trends inform us of where your business is heading. We also assess income risk. What is the risk of your business going to zero? Business growth, accounting standards, and the quality of your books are all important factors in determining value.
We account for the probability of your deal financing, and we look at your revenue mix. Ideally, you want a split of 30% mitigation to 70% construction. Your leadership team and owner role also add value to your business, as well as your geographical location.
“Valuing your business is more than just a percentage of revenue.”
Finally, we also look at your accounts receivable. Businesses with higher A/R are valued less. Generally, A/R falls somewhere around 10% of revenue; if yours are up to 30% or 40%, your company’s value takes a hit.
Valuing your business is more than just a multiplication of earnings or a percentage of revenue. We look at all these factors before we take your business to the market, and we strategically highlight what they are for potential buyers. For example, having a great leadership team may not show up in your financials, but it will command a higher price in the market.
If you have any questions, please email us at info@rbasells.com.
