What's Your Business’s Value
Use this calculator to immediately receive an estimate of the value of your business. This calculator does not replace a professional valuation, but can be a great place to start. Please contact us to discuss how we use these results as the first step in our proven process to get you top dollar for your business.
Disclaimer
This business valuation tool has been built using industry best practices for the valuation of owner operated businesses, with data based on current market conditions. It is intended to give business owners a general sense of the current value of their business, but is not a substitute for either a professional valuation, or a step by step self-valuation as provided by Business Selling Mastery
This report is prepared with information provided by the user, which has not been verified in any way by Gateway Business Brokers or Business Selling Mastery. We are unable to provide any assurances as to the correctness or completeness of the information herein, or the values calculated.
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Business Details
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Real Estate
3
Seller’s Discretionary Earnings (SDE)
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Modifiers
First Name *
Last Name *
Email *
Phone *
Business Name
Industry *
Date of most recent financial statements *
Revenue *
$
Total revenue for the year above
Net Profit *
$
The profit declared by the business in the year above, not including any income tax expenses.
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Real Estate
Does your business own its real estate directly, through a holding company, or in your personal name?
What is your best estimate of the current value of the real estate the business operates from?
$
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Seller’s Discretionary Earnings (SDE)
Seller’s Discretionary Earnings (SDE) is often the most important financial measurement of your business' profitability and value. It is the financial formula that allows comparison between businesses, apples to
apples, regardless of the tax planning decisions made by accountants or decisions made by management. SDE is the truest story and picture of your business's profitability.
SDE is defined as net income before deducting the primary owner's compensation and benefits, other discretionary, non-operating, or non-recurring income or expense, depreciation, interest, and taxes. This is also
referred to as Owner's Cash Flow. In layman's terms, this is the pre-tax profit generated by your company that allows you to pay yourself, provide you with benefits, and service your debt or mortgage payments.
SDE represents the entire financial benefit a business will provide one full-time owner-operator.
For Buyers: this is the total pool of money a business is producing annually to pay your expenses and debt servicing costs.
For Sellers: SDE is tied directly to the value of your business. Valuation techniques use SDE and a multiplier that is calculated based on a number of factors (industry, size, comparable sales,
etc.)
Please answer the following questions to help us calculate the SDE of your business. Approximations and estimates are fine, though results should then be viewed as less precise.
What annual wages (salary payments that show up on a T4 form) does your company pay you?
$
If there are other family members in the business, what adjustment would be needed to replace the work they do with new employees at market rates?
Example 1: Your partner only does a few minor tasks in the business, but takes a salary of $20,000 for tax purposes. That salary can be added back, so in this case enter 20,000.
Example 2: Your partner does work that someone else could be hired to do for $5,000, but is paid $20,000 for tax purposes. In this case enter the difference of 15,000.
Example 3: Your partner works 20 hours per week in the business but does not take a salary. You estimate that to replace them the company would need to hire someone at $20/h. $20/h * 20h/week
* 48 weeks/year = $19,200. In this case, since this is an additional expense that a new owner will have to bear, enter it as a nagative adjustment of -19,200.
Example 4: If you own an accommodations business (campground, hotel, etc) and you work in the business with your partner, enter an adjustment of 0. Your buyer will likely be another couple,
and SDE should reflect two owner operators instead of the usual single owner operator.
$
If you do not work full time in your business, what is the salary of the highest paid staff member (usually your General Manager)?
$
We can add this back to model how it would look for a full time owner operator. If you work full time, enter 0.
What insurance premiums (life and health) does your company cover for you and your family?
$
What interest expenses (short term and long term) are included on your financial statements?
$
These can all be added back.
What interest income or income from investments has the company booked?
$
Enter as a negative
What amortization and/or depreciation expenses have been booked in the year?
$
What phone expenses were booked to the business for phones that are used by the owner and family members?
$
Did the financial year under consideration have higher or lower repair and maintenance expenses than average, or than a new owner should expect going forward?
$
If expenses were greater than a new owner should anticipate, enter a positive amount to add back to bring it in line with future expectations. If expenses were less than a new owner should anticipate, which
is rare, use a negative number to include this in the calculation.
Add back all travel and entertainment expenses that were not essential to the operation of the business.
$
If the expense would be discretionary to a new owner, add it back. If the new owner would have to have this expense in order to maintain the operations of the business, do not add it back.
Amount of donations booked, to be added back.
$
Enter any non-essential research and development costs that were discretionary and will not be recurring for the new owner.
$
If bad debts are a regular and expected part of the operations of your business, they should remain in your SDE. However, if you sustained an unusual or one-time loss from a bad debt, that can be added back here.
$
Add back any one time project expenses and non-recurring professional fees (eg legal)
$
Other adjustments
$
For example revenue from activities unrelated to the business being sold (negative add back), expenses incurred to generate that unrelated revenue (positive add back), an insurance claim payout booked as revenue
(negative add back)
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Modifier (Rating)
Growth trend (business)
1: 3+ years of negative growth in sales
2: 1-2 years history of negative growth in sales
3: History of steady sales
4: History of low or unreliable growth in sales
5: History of consistent growth in sales
Growth trend (industry)
1: Industry in sustained decline
2: Industry at risk or stagnating
3: Industry growing slowly
4: Industry in steady long term growth trend
5: High growth industry
Historical Profits compared to industry
1: Profits much lower than industry average
2: Profits lower than industry average
3: Industry average profits
4: Profits higher than industry average
5: Profits much higher than industry average
Recurring revenue (eg subscriptions)
Recurring revenue are sales that will be charged to a customer unless the customer cancels, for example subscriptions.
1: less than 10% of revenue
2: 11-25%
3: 26-50%
4: 51-75%
5: 76%+
Repeat customers (inc recurring revenue above)
Repeat customers include recurring revenue, plus revenue that is not committed to but comes regularly from repeat customers.
1: less than 10% of revenue
2: 11-25%
3: 26-50%
4: 51-75%
5: 76%+
Revenue Risk
1: Startup, or industry in disruption
5: Long history (10+ years) of consistent results
3-5 years well documented financial reports
1: Financial reports for the past 3-5 years are incomplete and/or inaccurate
5: Financial reports for the past 3-5 years have been prepared by an accountant
Location
1: The current location is not desirable for the business, if it were in another location it would do considerably better
3: The current location is acceptable/average for the business
5: There is no better location for the business
Competition and barriers to entry
1: Low barriers to entry, multiple competitors
5: High barriers to entry and no competitors
Marketability of business
1: Low, specialized skills required from buyer
5: High, many potential buyers
Ease of operating business
1: No clear procedures documented and staff untrained in processes
5: Turnkey business that operates with little effort from the owner
Management team
1: Owner is responsible for all management tasks
5: Full time management team in place that will come with the business
Employee skill and productivity
1: Employees do not have any special skills and their productivity is low
3: Employees have skills specific to their jobs, and productivity is acceptable
5: Employees are highly skilled and motivated, and productivity is high
How easy to replace key staff
1: Hard to find key staff
5: Large pool of qualified potential employees for all roles
Owner personal service to customers
1: Owner heavily involved in customer relations and service delivery
5: Owner not involved directly with customers
Customer concentration
1: 50%+ of sales to a few key customers
5: No customer responsible for more that 5% of sales
Supplier risk
1: Significant risk of supply disruption (eg vendor going out of business)
5: Very low risk of supply disruption
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