My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.

How Should I Value My Business?

Guest Writer
Entrepreneur, Business Planner and Angel Investor
min read
Opinions expressed by Entrepreneur contributors are their own.
Usually industries have generally accepted formulas as a starting point, and then you adjust for extra factors. In hotels, I went online a searched for "valuation multiples for hotels" and found that industry average for the larger, publicly-traded hotel chains are somewhere around 10 times EBITDA (earnings before interest, taxes, depreciation, and amortization). So go back to your accounting reports and figure out what that's been for the last three years or so, and that will give you a starting point.

Unfortunately, that's only a starting point. You have to discount heavily since yours is a small privately-owned hotel, which is generally considered more risky as an investment than buying shares of stock in large hotels and chains whose stock is publicly traded.

And you have to discount for the fact that your 40 percent partner is buying a partnership with you (no offense) instead of an arms-length share in a major company. And it's worse as a 40 percent share, because that means your investor will have to spend a chunk of money worth 40 percent of the value of your hotel, but he or she still has no real control. There are several other ways to establish a value.

You also have to add in some amount for the value of the building and the real estate value of the land.

That's not the only way, however. Some analysts would build a detailed forecast of cash flow for as much as 10 years, and then discount that at a discount rate established to compensate for the present value of future cash flows, and the risk. Others use a technical hotel formula based on capitalization.

And for newer hotels, some will use a formula based on cost to buy and build. Professionals will also look for information they can find on recent private deals with hotels, so they have a basis for comparison. It's not like looking up the value per square foot and doing the math.

My underlying point is that you want to link yourself to some real expertise, as in an attorney, business broker and consultant with experience in selling hotels.

Ultimately, what you'll get is what you can negotiate. After all the formulas and reasoning you can muster, in the end, the price is the price that a buyer will agree to pay you.

Related: Tips to Consider When You're Ready to Sell
Related: Your Startup May Be Worth Less Than You Think

More from Entrepreneur

Kathleen, Founder and CEO of Grayce & Co, a media and marketing consultancy, can help you develop a brand strategy, build marketing campaigns and learn how to balance work and life.
Jumpstart Your Business. Entrepreneur Insider is your all-access pass to the skills, experts, and network you need to get your business off the ground—or take it to the next level.
Starting, buying, or growing your small business shouldn’t be hard. Guidant Financial works to make financing easy for current and aspiring small business owners by providing custom funding solutions, financing education, and more.

Latest on Entrepreneur