Determining the value of your business

[sinclairgraphics1]

A few months ago I met with some bankers regarding a business loan to purchase a new building. We ended up running out of time and had to lease instead but it all worked out how it was supposed to. Anyway, during the meeting, we were discussing what I valued my business at. They had a general formula as yearly sales x 1.5 or 2, plus all equipment and assets. This seemed high to me and was wondering if anyone else has a formula for determining the actual worth of your business. I'm considering selling or merging with another company and would like to have a legit and justified number when I go to pitch the business for sale.

 

[CanuckSigns]

It varies from business to business. If you have signed contracts with customers to be their sign supplier, that increases your business value quite a lot, but if you are like most shops, your biggest asset is you, and if you were to leave, your existing clients have no real reason to continue to do business with your company. Because of this, your yearly sales don't play as large of a part in your valuation as you might think.

 

[sinclairgraphics1]

Yes, we do have some contracts. However, I would possibly stay on as an employee if the business buying mine would prefer that. I think if I pitched the sale to the right person or business they would buy it with or without me included.

 

[StarSign]

I know of instances where the previous owner has stayed on as an employee, but only for a contracted period (6 mos-1yr). It helped the new owners into a smooth transition. It's very hard to go from owner to employee.

 

[sinclairgraphics1]

I know of instances where the previous owner has stayed on as an employee, but only for a contracted period (6 mos-1yr). It helped the new owners into a smooth transition. It's very hard to go from owner to employee.

Yes, I would prefer something like that where I'm only here for a few months. I would imagine that would be difficult being an employee after being the owner of something you've built. At this point though, I'm ready for a change.

 

[rjssigns]

Sign shops/businesses aren't worth much unless you own a building in a prime area. Used equipment is just that, used. Client lists are only good if the person taking care of said clients stays on, and even that is no guarantee.
My business is only worth what I can get out of my equipment.
Only time a valuation multiplier comes into play is if your business generates residuals. Adobe is an example since they went CC.