I run a small manufacturing shop with about 15 employees. Been thinking about selling in the next year or two but I have no clue what it's actually worth. I see these online calculators that give me wildly different numbers, and a broker told me one thing but a friend said he was just trying to get the listing. How do I get a number that won't make me look like an idiot when I talk to buyers?
Valuation
How to get a realistic valuation before putting your business on the market
Pay for a real valuation from a certified appraiser. Yes it costs money but its the only number that holds water. Those online calculators are garbage.
What SprocketHead said. Also, be ready for the appraiser to ask for three years of financials. If your books are messy, clean them up first. Nothing tanks a valuation faster than a shoeBox of receipts.
I sold my HVAC business two years ago. Got a valuation from a broker, then another from a CPA who specialized in small biz sales. They were about 30% apart. The CPA number was more realistic because he wasn't trying to win my listing. Just my two cents.
That's the thing that worries me. The broker gave me a number that felt high. Like he was buttering me up. How do I know who's actually qualified?
Look for an ASA or CVA credential. Not just 'business broker' on a business card. There are good brokers out there but the certification matters.
Man I wish I had done this before I listed. I went with a broker's estimate, priced high, and my listing sat for 8 months with zeor offers. Had to drop the price twice. Total waste of time.
PlasticPineapple that's brutal. But also pretty common. Sellers get emotionally attached to a number and buyers don't care about your feelings.
Also think about what a buyer is actually buying. Are they buying your equipment, your customer list, your reputation? If you're the business (i.e. clients only work with you), your valuation takes a hit. That's something an appraiser will factor in.
SBA lender here (not a broker, don't yell at me). Most small biz sales I see are 2-3x SDE for companies under a million in revenue. If someone is telling you 5x, ask for for comps. Real comps, not 'trust me bro' comps.
TinyRaptor what's SDE again? I keep seeing that acronym and nodding along like I know.
Seller's discretionary earnings. Basically your profit plus add-backs like your own salary. It's the standard for small business valuations. Ask an appraiser to walk you through it.
One more thing nobody mentioned: get your customer Concentration checked. If 40% of your revenue comes from one client, buyers will discount you hard. GrumpyBiscuit77 do you have that issue?
Yeah, actually. My biggest account is about 35% of sales. I hadn't even thought about that as a valuation issue. Sounds like I need to talk to an appraiser AND my CPA before I do anything else.