One of the most frequently asked questions in my business is “How can I determine/improve the Fair Market Value of my business?” When we talk about the Fair Market Value, we’re referring to the value of your business as seen through the eyes of a qualified buyer.
Depending upon the business, there may be industry rules of thumb, such as X times the annual sales for a professional practice, or $Y per seat for a restaurant, or $Z per bay for a self-service car wash, which may be helpful; but there are many factors to consider, such as customer concentration, industry trends, regional economic trends, strength of the balance sheet, strength of the management team, age & condition of the equipment, just to name a few.
From experience, however, I advise my clients that 70% – 80% of the selling price of an ongoing business is determined by its proven ability to generate cash. All of these other factors play a role in determining the final selling price, but if you’re looking for the most important way to directly improve the fair market value of your business, work on improving its profitability and its cash flow.
If you know of a business owner who’s thinking of selling and who might benefit from a complimentary consultation with us, have them contact me, or any of the M&A professionals at www.bradwaygroup.com
By: Mike Ertel, Transworld M&A Advisors