Simply put, the true value of a business is the price that someone is willing to pay for it in the marketplace. This concept can and often is in conflict with valuations done for financing purposes, estate planning and the like.

Utilizing our comprehensive database of economic and comparable transaction information, Spectrum Business Advisors can help you accomplish the following objectives:

Ensure that the value you perceive in your business matches the value perceived by the marketplace

Assist you in developing a comprehensive plan for aligning both perspectives to come to a value that ultimately meets your personal and professional objectives

Cash Flow Valuation

Most "Main Street" businesses are valued primarily as multiples of annual cash flow with little regard to the balance sheet provided there is nothing extraordinary in the asset, liability or equity totals.

The greatest weight is typically placed on the historical and current cash flow performance of a business which is then used to gauge the ability to continue that performance into the future. Additional weight is often placed on the value of a business based on the cash flow that could be earned by a new owner.

Timing Is Everything

All things being equal, the timing of the sale of a business can also determine the value due to such factors as industry consolidation and cost of capital. Recently, the inexpensive cost of capital has played a large part in receiving excellent business valuations. A low or moderate interest rate climate allows for greater debt service on financing used to acquire a business allowing for greater financing amounts, i.e. greater valuations.

Valuation Components

In addition to the above analysis, a valuation report typically contains the following components:

Historical Income Statement

Adjusted Cash Flow

Comparable Sales

Summary of Common Size Financial Statistics

Summary Review of Each Valuation Approach

Valuation Conclusion and Justification

Even if you have no intention of selling your business today, one of the most important disciplines you can undertake is to understand the current and potential future value of your business and adjust accordingly.

Contact the Spectrum Team today for a free, confidential advisory session. The best investment of your time is an investment in yourself and your business.