"No one knows what a particular business will sell for," says Frederick D. Lipman, a Philadelphia mergers and acquisitions attorney and author of How Much Is Your Business Worth? (Prima). Lipman outlines many pricing methods in his book, the top six of which are described below.
1. Rule of thumb. Some industries have accepted yardsticks for measuring each business's worth. It might be the number of subscribers or a formula multiplying gross sales by an accepted figure.
2. EBITDA. The business's Earnings Before Interest, Taxes, Depreciation and Amortization is multiplied by a figure that is the result of a "backward" calculation on sales of other companies in the same industry. Lipman cautions, though, against carrying over the multipliers from large companies for calculations on small ones.
3. Discounted cash flow. Here's where your business's future, as well as its track record, count most. Revenue projections and operating profits are discounted in line with the level of risk that faces your business. Various formulas exist for determining the discount rate.
4. Comparable company valuation and
5. Comparable transaction valuation. Both methods attempt to translate figures from similar sales to match the financials and other relevant data on your business.
6. Asset accumulation. Your business's value is assumed to be the sum of the ongoing value of each component of the business. Real estate and trained employees, among other things, get separate evaluations. This method is valuable if individual assets are eliminated from the sale; recalculating the price to reflect those subtractions is a straightforward process.
Bizcomps, P.O. Box 711777, San Diego, CA 92171, (619) 457-0366
Frederick D. Lipman, c/o Blank Rome Comisky & McCauley, 4 Penn Ctr. Plaza, Philadelphia, PA 19103, (215) 569-5518
Pearle Vision Inc., 322 Skokie Blvd., Northbrook, IL 60062, (847) 714-9500
Sis Investments Inc., 2311 W. 22nd St., #102, Oak Brook, IL 60521, (630) 571-1505
Sunday Afternoon Gallery, 548 Chestnut St., Winnetka, IL 60093, (847) 446-3970