2. If you want to buy or sell a business, what
factors are considered to determine its value?
◦ Price/Revenue Multiple
◦ Price/SDE Multiple
3. 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 company's financial
statements is a net sales number, reflecting these
deductions.
4. Typical is 0.3 to 0.6
Highest multiples >1
◦ Coin operated laundries,
◦ Car washes
◦ Accounting/bookkeeping services
◦ Home inspection service
◦ Newspaper delivery service
5. SDE: Seller’s Discretionary Earnings is net
income before:
◦ Primary owner’s compensation
◦ Other non-recurring income or expenses
◦ Depreciation
◦ Amortization
◦ Interest
◦ Taxes
6. Typical range from 1.5 to 2.5
Highest > 4
◦ Gas distributors
◦ Video production
7. 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
8. Cash
Accounts receivable (really receivable)
Inventory (fairly valued)
Real estate
Other tangible assets
Subtract:
Liabilities being incurred with the purchase
9. 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
12. 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??
13. Entrepreneurs get asked questions about
◦ Earnings
◦ Sales
◦ Projected sales/earnings
Shark Tank investors have valuation models
in mind and fit with their capabilities
Let’s watch
14. 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
15. Element Bars
◦ http://www.youtube.com/watch?v=BJ-
zSDjJsPQ&feature=related
◦ http://www.youtube.com/watch?v=wt0_9AW3O2c&
feature=related
