If you want to buy or sell a business, what factors are considered to determine its value? ◦ Price/Revenue Multiple ◦ Price/SDE Multiple
Price: Sales price of business paid for intangible assets (goodwill, location, patents, licenses, customer lists, etc.), furniture, fixtures and equipment Revenue: Net Sales The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any discounts allowed. The sales number reported on a companys financial statements is a net sales number, reflecting these deductions.
Typical is 0.3 to 0.6 Highest multiples >1 ◦ Coin operated laundries, ◦ Car washes ◦ Accounting/bookkeeping services ◦ Home inspection service ◦ Newspaper delivery service
SDE: Seller’s Discretionary Earnings is net income before: ◦ Primary owner’s compensation ◦ Other non-recurring income or expenses ◦ Depreciation ◦ Amortization ◦ Interest ◦ Taxes
Typical range from 1.5 to 2.5 Highest > 4 ◦ Gas distributors ◦ Video production
CitiKitty--$100,000 for 15% Pass on Voyage Air Guitar Stamps & Martin t-shirts--$50,000 for 15% Jewelry--$180,000 for 45% Wenzel--$500,000 for 20% convertible shoes http://abc.go.com/watch/shark- tank/SH559076/VD55126456/week-8?rfr=google http://www.bing.com/videos/watch/video/week- 8/17wz5b5au?q=shark+tank+full+episodes&FORM=VIRE3
Cash Accounts receivable (really receivable) Inventory (fairly valued) Real estate Other tangible assetsSubtract: Liabilities being incurred with the purchase
Commercial Bakery with: ◦ Annual net sales of $1,000,000 ◦ SDE $250,000 ◦ Equipment worth $200,000 ◦ Donuts worth $5,000 ◦ Accounts receivable of $120,000 ◦ Bakery building valued at $250,000 ◦ Taxes due of $15,000 ◦ Donut truck worth $15,000 ◦ $500 in the till ◦ Loan of $150,000 you would assume
Range from $625,000 to $825,000 ◦ Which one is right? What other considerations are there? ◦ Projected earnings ◦ Ideas you might have ◦ Problems you anticipate ◦ Synergies with other businesses ◦ How should these factor in??
Entrepreneurs get asked questions about ◦ Earnings ◦ Sales ◦ Projected sales/earnings Shark Tank investors have valuation models in mind and fit with their capabilitiesLet’s watch
Belt Buckle—Hollywood Washed Up ◦ http://www.youtube.com/watch?v=7C0LP1ehmVk& feature=related 10 min Natural Soda ◦ http://www.youtube.com/watch?v=UDheVH21FMM &feature=related 8 min
Element Bars ◦ http://www.youtube.com/watch?v=BJ- zSDjJsPQ&feature=related ◦ http://www.youtube.com/watch?v=wt0_9AW3O2c& feature=related