What’s My Business Worth?

All business owners want to know – “What is my business worth?”

Knowing your business’ street value is important. Not what you think, but an objective dollar amount based upon sound valuation principles. The value of a business is more dynamic than that of a house or

car. Significant components to establishing your shop’s value include:

Tax returns
Tangible and intangible asset lists
Staff and sales history
Market and competitive conditions

Tax Returns

While the three latest tax returns are very important, a healthy profit trend over many years is evidence of

good management. Assets, debt, salaries, inventory and equipment are evaluated along with sales, gross

and net profit.

Tax returns showing respectable net profit despite sales fluctuations indicate good managers monitor

financial statements and make adjustments. Sound management practices signal astute buyers of a

desirable enterprise to acquire and value estimates rise.

Assets

Tangible assets include your inventory and equipment. Have a spreadsheet for each showing equipment

brands with model numbers and inventory part numbers with distributors. Show purchase price and date,

current depreciated value and today’s fair market value. Ask yourself what you would pay for it. On the

equipment list have photos of what’s most valuable. Old inventory can be worth less than you paid.

Obsolete equipment and parts are best cleared from your business.

Intangibles include your customer list, website, social media, phone number and vendors. For these

intangibles to be considered, the seller needs to organize and prove value. Have spreadsheets with

customers’ purchasing history, ranked best to least, contact names, phone and email addresses. Tie this

together with your current strategic and marketing plans.

From the tax returns and good current accounting, establish how your company compares to similar shops

recently sold or now on the market. Financial ratios of net profit to sales, net to equity, assets to liabilities,

receivables to payables and others can be compared to industry averages and target benchmarks.

A healthy company culture today, has a mix of new hires and stable employees focused on pleasing customers with quick job turnaround. Too many new hires or no new hires are both weaknesses. You want

a millennial on staff to help with social media and communicating with your growing number of

millennial customers. Train the new hires with written practices and systems for getting cars out the door

quickly. A systems-based business is worth more than one with little in written procedures.

Many industries have formula for determining business value. For pharmacies it’s been $10 plus or minus

times the number of prescriptions per year. For magazines and newspapers it’s a function of their paid

subscriptions. In the auto repair business, one formula has been 35-40% of annual gross sales plus inventory.

Once every three to ten years, we recommend getting a certified valuation. They can cost $3,000 and up

depending upon the size of your business. It’s possible that during the valuation process, a more accurate

value formula can be built for your shop which you and your accountant can apply annually to be sure

you’re making progress to reach your value targets.

The Internal Revenue Service code makes it advantageous for business buyers to acquire assets while

sellers do best if they sell the business. The very act of identifying and establishing the value of your

business beyond your assets increases the business value and your ability to sell it.

There are television shows of firms that specialize preparing a house or a business for sale. Clever staging

and marketing can result in competitive bidding and a substantially higher price than the more

conservative estimate a certified valuation expert may determine that the IRS will accept.

The suggested price that valuation experts offer can also vary because of volatile market conditions at

different times of the year and changing local or national economic conditions.

Adding to this is the differences between various types of buyers. Family, employees, competitors,

investors and strategic buyers look for different business attributes and will be willing to pay based upon

them. If you prepare your personal and tax circumstances, you can put as much as twice as much in your

retirement portfolio from sale proceeds.

Your shop is worth what you make it worth. Like a car, if it runs you probably can get someone to pay

you something, but not much. Make everything about your shop sparkle in the sun and people want it and

will pay top dollar. Valuation is an ongoing process. Determine what you want it to be worth. Then, make

it worth more than that, and make your Smart Exit™!

Read the next article in the series: Who Might Buy My Shop?

By John E. Anderson, CEO of Be Cause Business Resources and Author of Smart Exit™ Steer Your Business to Success and Companion Workbook

John Anderson shares key areas of opportunity in every successful business exit strategy in this six-part series of articles written especially for the members of the Automatic Transmission Rebuilder’s Association (ATRA), and published monthly in the ATRA Trade magazine. The Smart Exit™ Series for Business Owners leads up to a half-day Smart Exit™ Workshop at the Automatic Transmission Rebuilders' Association annual international event - Powertrain EXPO in Las Vegas October 19-22.