BizBuySell, which is an online marketplace for buying and selling businesses, now offers a free valuation report. The valuation report helps you determine fair market prices for businesses in your industry.
I used the tool yesterday and came away impressed.
It’s very simple to generate a valuation report. You go to the BizBuySell valuation center, and insert your email address. You pick an industry from a drop-down box. Then, voila. You are emailed a code for access to a valuation report.
What You Receive
You get an online, printable listing of recent selling prices for businesses in your industry, along with the average selling price. Prices are automatically calculated as a “multiplier” of X times annual revenues (gross income), and X times cash flow. These are two well-established methods to determine selling prices of businesses. You get average and median multiplier numbers.
You also can get information about how the selling prices compare to asking prices. Just like with real estate, you want your asking price for your business to be within a realistic negotiating range. Set the price ridiculously high and you will turn away serious buyers. Set it too low and you may not leave yourself enough negotiating room. Example: if you find that most businesses in your industry sell for 85% of the asking price, your asking price should leave room to negotiate down by 15% — maybe more — and still achieve your target price.
Not only can you get information about businesses that have sold, but you also can get information about current for-sale listings. This could give you valuable insight into how to position your business against the competition on the market — or even whether to wait a while before listing.
The reports also allow you to slice and dice the data in different ways. For instance, you can run a list of businesses by industry in designated geographical markets in the United States. You can even exclude certain businesses from the totals for purposes of calculating multipliers, say if you think one particular business was a special circumstance and might incorrectly skew the results.
This is actual data, not estimates or opinions. The report is based on 30,000 recent sales and nearly 50,000 current listings of businesses for sale.
In addition to comparable sales data, there is an interactive pricing worksheet where you can insert the numbers for your business and have it calculate a starting point for pricing your business.
Who Can Use the Business Valuation Reports
I can see this online valuation service being used by several categories of business owners:
- Very small businesses that go without the services of a broker — Sellers of very small businesses frequently do not get a custom valuation done or hire a business broker due to the size of the transactions. For example, there is an established market for buying and selling Web sites and Web-based businesses. These might be sites such as vertical classifieds sites, advertising-supported forum sites, or eCommerce sites. Some of these Web businesses don’t have enough money in them to warrant paying broker or valuation fees, especially if they are selling for under $25,000. The sellers usually handle the sale completely on their own. Using the free valuation report from BizBuySell would give Web site sellers much more information than they usually have today.
- Business owners desiring to sell in the future — Business owners who may be thinking about an exit at some point down the road, but are not ready to sell yet, would find the reports highly useful. The valuation report gives an idea of what the business might bring — and how you might have to grow your business in order to get your desired selling price. For instance, the owner might learn that he or she would have to increase sales in order to get a sufficient lump sum to fund retirement. If you still have 3 to 5 years before you are planning to sell, you still have time to work toward that goal.
- Buyers searching for businesses to purchase — Finally, the reports will be exceedingly valuable to buyers, too. You never want to overpay, of course. Plus, you may need to line up financing, and the valuation report can come in handy.
Caveat: if you have a big-dollar business to sell or buy, you are going to want the services of a business broker and/or a professional valuation. If the dollars in the transaction are significant, the free valuation report should only be a starting point and not a replacement for a custom valuation.
Bottom line: the online valuation report is a valuable tool and a welcome service from BizBuySell.