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Rules of Thumb & Sellers
                               Discretionary Earnings




© 2010 Allen & Young Business Brokerage...
What are Rules of Thumb?

•Many of you have heard of rules of thumb for selling a
business. But, how accurate are they? Th...
What is a more accurate way of pricing a
                   small business for sale?

Multiple of Earnings.

•For small bu...
So what are Discretionary Earnings?

•Discretionary Earnings are the net earnings of a business
enterprise before taxes, a...
•    We hope this provides you with a better understanding
     of the process of pricing a small business for sale.

•   ...
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Rules Of Thumb Slideshare

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Pricing Small Businesses: Using Rules of Thumb and Sellers Discretionary Earnings

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Rules Of Thumb Slideshare

  1. 1. Rules of Thumb & Sellers Discretionary Earnings © 2010 Allen & Young Business Brokerage LLC 2500 N Tucson Blvd Ste 109 Tucson AZ 85716 T 520-327-4454 F 520-327-1271 info@allenandyoung.com www.allenandyoung.com
  2. 2. What are Rules of Thumb? •Many of you have heard of rules of thumb for selling a business. But, how accurate are they? They are NOT! •Most rules of thumb are NOT market driven. Frequently, they are based on someoneʼs opinion of a past sales price or even an asking price. •They are what they are, no more no less, a simple back of the envelope calculation that is generally misleading. They should never, and I repeat NEVER, take the place of a thorough analysis of the business in question. © 2010 Allen & Young Business Brokerage LLC 2500 N Tucson Blvd Ste 109 Tucson AZ 85716 T 520-327-4454 F 520-327-1271 info@allenandyoung.com www.allenandyoung.com
  3. 3. What is a more accurate way of pricing a small business for sale? Multiple of Earnings. •For small business, this multiple is used against what is called “Discretionary Earnings.” •Discretionary Earnings is usually based on a multiple between (0-4) which is then multiplied against the earnings of the business. © 2010 Allen & Young Business Brokerage LLC 2500 N Tucson Blvd Ste 109 Tucson AZ 85716 T 520-327-4454 F 520-327-1271 info@allenandyoung.com www.allenandyoung.com
  4. 4. So what are Discretionary Earnings? •Discretionary Earnings are the net earnings of a business enterprise before taxes, adjusted for the following items: 1. nonrecurring income and expenses 2. non-operating income & expenses (the ownerʼs perks) 3. depreciation and amortization 4. interest income or expense 5. total compensation for one owner / operator © 2010 Allen & Young Business Brokerage LLC 2500 N Tucson Blvd Ste 109 Tucson AZ 85716 T 520-327-4454 F 520-327-1271 info@allenandyoung.com www.allenandyoung.com
  5. 5. • We hope this provides you with a better understanding of the process of pricing a small business for sale. • Regardless of where you live, we would be happy to discuss the process of buying and selling a business with you. • If you have any questions, or to see a full list of resources, visit us at www.allenandyoung.com. • You can also call us at 520-327-4454 © 2010 Allen & Young Business Brokerage LLC 2500 N Tucson Blvd Ste 109 Tucson AZ 85716 T 520-327-4454 F 520-327-1271 info@allenandyoung.com www.allenandyoung.com

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