Value My Business

Know Today,
Plan for Tomorrow

For most owners, a business isn’t just a venture, it’s the cornerstone of their financial portfolio. Knowing your current value is critical for your exit strategy.

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Impacts on Business Value

Financial statements don’t provide the full picture.

There’s a myriad of factors that impact the value of a business at a given time. To build a more complete picture, we consider important factors such as…

  • Historical financial performance
  • Operational Details
  • Organizational Structure
  • Employee turnover rates
  • Competitive landscape
  • Future growth potential
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Market-Based Business Valuations or Opinions of Value help to build the roadmap for the trek ahead.

Unlike a certified business valuation or appraisal for legal or financial needs, an opinion of value is a powerful tool offering insights into industry benchmarks and gives you a clearer picture of where your business stands. This analysis will help answer pivotal questions like:

Is my business ready for sale? What are the next steps for preparation?

Is the current value what I need to retire comfortably?

How much time and effort am I able to invest to increase the business’s value?

Industry Insights in Alaska

Owning a business is the greatest way to build wealth and take charge of your own destiny. Aligning your objectives and financial parameters are essential to setting you up for a successful transaction.

Annual Sales Plus Inventory: 30-50%
SDE Plus Inventory: 3-4x
EBIT: 2-3.5x
EBITDA: 2-4x

Companies doing up to $3M a year are primarily valued on cash flow, while EBITDA is the best indicator for larger companies doing $3M to $20M a year.
Economy of scale and upper management are key factors in the value metrics. Specialty trades like Mechanical/HVAC, Electrical, and Plumbing sell at a premium over general contractors.
Source: DealStats

You already know the common Valuation Considerations for the construction industry like the company size, scope and scale of projects, labor expenses, value and age of equipment, etc.
However, you may not know that much of the value is influenced by the amount of direct involvement of the owner. When a GM, along with a team of people, is primarily running the operation, the value and salability dramatically increase.
How a buyer might compensate for a higher risk profile is through creative deal structuring. For example, if the buyer and seller agree on a sale price, instead of a one-time cash payout, the buyer may negotiate for less cash at closing with a seller note, and a multi-year earn-out.
Source: DealStats

Annual Sales Plus Inventory: 50-60%
SDE: Plus Inventory: 3-4x
EBIT: 4-5x
EBITDA: 4-6x

The SDE multiple is the best indicator of value and is mostly influenced by the size of the agency. Staffing and customer concentration are key considerations to evaluate. Seller’s Discretionary Earnings (SDE) is defined as net income plus non-cash expenses and owner-related expenses.
Good SDE Margin: 12-15%
Excellent SDE Margin: 15-20%
If the SDE margin is over 20%, the business may be understaffed and may be more dependent on the owner.
Source: DealStats

Home Health Care is a people business. It takes high empathy, flexibility, and a lot of patience. You need to have a heart for making people’s lives better and new owners need to prioritize building a great culture. It sounds like fluff, but it is potentially the most profit-generating aspect of service-based businesses.

The better the culture, the more successful the sales and marketing, operations, and financial performance will be. Here are some benchmarks for healthy Home Healthcare Businesses:

  • +15% Net Margin
  • Cost of Goods Sold are between 45% and 55% of revenue
  • SDE target margin 16%

Passion aside, having a medical background, industry experience, and an understanding of the licensing requirements are necessary for foundational success. Source: DealStats

Annual Sales Plus Inventory: 0.80-1x
Annual Sales INCLUDES Inventory: 32%
SDE Includes Inventory: 3x
EBIT: 2-3x
EBITDA: 3.75-4.75x
Owner’s Provable Net Income: 4-6x

It’s not easy pinpointing the market value of full-service car washes. These are typically cash businesses and the income can be hard to verify. What’s more, there is virtually no outside financing or SBA loans available because of poor bookkeeping.
It’s not all bad… a good location and great service can produce excellent profits. The industry average profit margin is 16% and more successful companies, diversified their offerings implementing value-added services like interior cleaning, ozone treatments, waxing and rim shining, and ceramic coatings, in addition to their basic packages. Adding purchasable products like drying towels, floor mats, and air fresheners can boost the revenue streams.
Source: DealStats

Well, I can’t answer that question for you, however I WILL be your guide in assessing the right opportunity for you! Knowledge is power when it comes to buying a business. Here are the top 10 questions to ask when evaluating an acquisition of a full-service car wash:

  1. How many vehicles per month do they do? Understand summer vs. winter months.
  2. What is the average ticket on each vehicle?
  3. Are there environmental issues?
  4. What is the length of the lease?
  5. Will the landlord agree to favorable lease rates for the new owner?
  6. Is there at least one manager in charge of day-to-day operations?
  7. What assets are coming with the sale?
  8. What is the age and state of the assets?
  9. What is the employee turnover rate?
  10. What is required for working capital on a monthly basis.

Buying a business is not a trek, you should go alone. At minimum, we can be your sounding board and a second pair of eyes in the due diligence process. If you need a guide for the entire journey, we’ve got you!
Source: DealStats

Three Business Valuation Myths

1

The valuation is directly related to the energy and effort you invested into building the company.

2

A buyer will pay for your business’s untapped potential.

3

There are industry-accepted standard multiples.

Prepare for the Inevitable

As a business owner, you may have faced tough decisions and often felt isolated. You need a sounding board and partners who can help you weigh your options without being personally impacted by the outcome. That’s where we come in.

Whether you’re looking to grow, sell, or acquire a business, assembling your advisory team is non-negotiable. We’re ready to assist you in your journey to help you achieve a very positive outcome. Meet your teammates.

Meet Your Team
Horizon Trek, LLC Alaska. Business Advisor, Wendy Claussen
Horizon Trek, LLC Alaska. Business Advisor, Nathan Henshaw