Argos business consulting
How Do We Value Your Business?
Business valuation is the process of determining a company’s economic worth. It’s crucial for various purposes such as sale value, partner ownership, and legal proceedings. Oftentimes, owners will turn to professional business valuators for an objective estimate of the business value.
At Argos, our certified professionals provide thorough business valuations aligned with nationally recognized standards. Whether through our brokers or affiliated valuation firms, we ensure clients receive expert guidance on available services, associated costs, and the necessity of valuation.
Valuing a business requires both art and science, considering various factors beyond formulas. Accredited Business Intermediaries determine the asking price based on comprehensive analysis, including nationwide and regional comparisons.
With access to a vast database of businesses sold across North America, we help owners understand their business’s true value and navigate the valuation process effectively. Our goal is to ensure you receive the worth your business deserves.
Approaches to Business Valuations
There are three generally accepted approaches to valuing a company
Assest Approach
The Asset Approach values the assets of your business minus the liabilities.
Some of the methods in this approach are book value, excess earnings method, asset accumulation method to name a few.
However, these values usually mean very little to the market value of most operating businesses. For the most part the asset approach does not properly represent the value of an ongoing business that has positive earnings.
Cash Flow Approach
The cash flow approach assumes a buyer of a business purchases a business for future income.
A business’s cash flow can be expressed many ways, typically either as Free Cash Flow, Earnings Before Interest Taxes & Depreciation (EBITDA) or Seller’s Discretionary Earnings (SDE).
For most business transactions, SDE or EBITDA is the most common basis for establishing a selling price.
Bottom line, the more cash flow there is, the more a buyer will be likely to pay.
Market Approach
The Market Approach to business valuation is much like a real estate comparable method.
Businesses of similar size and in the same industry sell for similar valuations.
Researching publicly traded company valuations and private sale databases we can find multiples of gross sales and earnings to compare to your business.
This method can be very reliable in most cases and is a strong indicator of value.
Argos vs EBITDA Evaluations
The standard model for valuing a business is taking EBITDA and then multiplying it by a factor that is relative to the business type, its standing within an industry as well as its tenure in business. Other key factors can affect the EBITDA multiplier such as the management team, patents owned, market position, strength of social media presence.
However, the major factor in determining the multiplier, is the actual industry that the business operates. For example, a startup technology company that is not yet profitable can receive a better multiplier than a family-owned restaurant that’s been in business for 20 years.
Finally, since many small to medium single entity owned businesses do their best to maximize their expenses (i.e., tax deductions) and minimize their tax burden, using straight EBITDA with a multiplier factor would likely not nearly show the true value of the business. At Argos our focus is to give a fair and accurate depiction of the true worth of the business.
To this end, we use our experience to remove personal deductions that are discretionary to the business and add them back to the bottom line. This can drastically change the valuation of the business and help a business owner truly get what they deserve.
Ensure You’re Getting What Your Business Is Really Worth
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