Pricing Your Business to Sell

Post written by: Kim Cedarstrom residential/commercial Realtor©, Consultant kcedarstrom@roche.g.corvida.com

 In the previous blog I covered the four ways to value a business when selling/disposing of it. Here I’ll go over the most common way to determine the market price of a business “Sold as a Going Concern”. What is commonly called a “business” can actually be comprised of up to three distinct parts – the “business”, the inventory, and the real estate (if it has any). The total selling price is the total of the three. The real estate is valued by standard industry methodology. The inventory is priced at the current wholesale value or the cost of the inventory. This leaves the task of setting a market value for the business entity. There are many ways to value the worth of a business. The most commonly used valuation methodology for small businesses is using an earnings approach based on the total cash flow to the owner. This figure has different names – owner’s cash flow, seller’s discretionary cash, and Seller’s Discretionary Earnings (SDE). An earnings approach includes the value of furniture, fixtures, and equipment in the price. For our purposes I’ll use the term SDE. This approach uses total cash flow that benefits the owner of the business, including salary, benefits, depreciation, etc. All of this is then added to the profit (if any) that the business produces to arrive at a total we’ll call SDE. Multipliers are derived from comparable regional and national sales and differ for each type of business. SDE is calculated by adding the owner’s salary to Earnings Before Interest Taxes Depreciation and Amortization (EBITDA), then a multiplier is applied. So basically the magic formula is:

 

        (EBITDA + owners salary = SDE) x multiple = selling price. Now the inventory and real estate must be added to arrive at the total selling price.

 

OK, so how’s your headache? That’s a lot to digest in one big bite. Here’s what I’ll tell you as I do my clients, don’t get too wrapped up in the methodology. That’s my job. I put forth the explanation only to give a basic idea of how the system works. The best thing you can do is to consult a professional to do this work. Many other variables will enter into the pricing scheme such as ease of duplication of the business, lifestyle considerations, and synergistic situations such as buying out a competitor. Another big thing to know is that there are some few things that you should do prior to putting your business up for sale. Again, consult a pro and if at all possible plan ahead. A time frame of three years is recommended to get your business ready to sell to maximize your return.

There are a few exceptions to the above method. If the business relies on the real estate as the “inventory”- hotels, inns, marinas, B&B’s, etc. – then the business value is primarily in the real estate. If the business is based on rental income, then an income approach is used to price the business.

So, there it is. I think the best thing to say here is don’t try this at home. Selling your business is a big step. Many people (and sometimes families) have spent their careers and fortunes in developing and operating a business. They are often so involved and invested in the framework of the entity that they have a hard time looking at the disposition of the business in an un-impassioned and unbiased way. Understand one thing: selling or buying a business is just like any other transaction, it requires two willing participants and is impersonal. Try to separate yourself from the process. It is really important to try to put your self in the other person’s shoes in the transaction. People who buy or sell businesses are almost always “businesspeople”. They are experienced knowledgeable folks who for whom this “isn’t their first rodeo”. Give them some credit and make it worth their while to do business with you. Many times the best potential buyers are from the same industry—often competitors.

Next time the big question- Buy a business or start your own?

Call or email me with any questions or comments. I would be glad to hear from you.

 Kim Cedarstrom is a licensed Commercial and Residential Realtor© and consultant living in Meredith NH. Having spent a lifetime founding, operating, and selling his own businesses in the Lakes Region of New Hampshire, he now offers lakefront and residential real estate services in addition to commercial property and business sales.  Contact Kim at kcedarstrom@roche.g.corvida.com or at 603-520-6609. Initial meetings are always free of charge.

Moving into new home young happy couple celebrating toast Champagne

Buying a Home? Follow These Tips & Tricks

Spring has officially arrived and launches the beginning of our spring selling season for real …

Read More →
Marketing

How Marketing Real Estate Has Evolved

Back in the year 2000, the world was at the beginning stages of a major …

Read More →
Mount Washington, New Hampshire

New Hampshire — 30 Reasons to Move Here!

With lakes, beaches, mountains, forests, rivers, and the ocean for people who enjoy the outdoors, …

Read More →
New Hampshire Ski Resort

Ski Resorts in New Hampshire Are Ready for Spring Skiing!

It’s been a good week, and mother nature hit our region with a blanket of …

Read More →
Market Trends

Real Estate Market Trends to Follow

I’ve been pulling up some current research on the real estate market on a national, …

Read More →
Carol Mattice

Roche Realty Group Welcomes Carol Mattice

Meredith — Frank Roche, President of Roche Realty Group, Inc, with offices in Meredith and …

Read More →
Kevin Shaw - Roche Realty Group

Kevin Shaw of Roche Realty Group is Top Producer for 2022

Laconia— Frank Roche, president of Roche Realty Group with offices in Meredith and Laconia, recently announced …

Read More →
Lisa Lewis

Lisa Lewis Joins Roche Realty Group

Meredith — Frank Roche, President of Roche Realty Group, Inc, with offices in Meredith and …

Read More →
Wanda Keenan

Wanda Keenan Joins Roche Realty Group

Meredith— Frank Roche, President of Roche Realty Group, Inc. with offices in Meredith and Laconia, …

Read More →
Land for sale

Buy Land in New Hampshire — They’re Not Making it Anymore

The science is in and the more trees a state has, the happier and less …

Read More →
The Price of Real Estate

Did The Price of Real Estate Increase in Your Town?

Everyone’s always interested to see how their real estate values have performed over the past …

Read More →
Laid off employee in recession

Are We Headed into a Recession?

It’s pretty big news lately; Microsoft, Amazon, and other tech companies have laid off more …

Read More →
Price Reduced

2022 vs. 2021 — Is The Lakes Region’s Frenzied Market Over?

It’s that time of year to provide all of you with an update on real …

Read More →
Roche Realty Meredith

Roche Realty Group Reports a Record of $181 Million in Sales

               Meredith- Frank Roche, President of Roche Realty Group, Inc, …

Read More →
Hillside Inn Winter

12 Things To Get You Through The Winter Months

On December 21st, the winter solstice marked the start of when days will begin to …

Read More →
Housing Inventory Lacking - Lake Winnisquam, NH

Lake Winnisquam, NH’s 4th Largest Lake is in Strong Demand

There are literally 273 lakes, ponds and rivers to enjoy in New Hampshire’s Lakes Region. …

Read More →
Interest Rates

Will We Ever See 1980s Interest Rates?

I was with a Realtor® friend of mine this past week, and we discussed what …

Read More →
Hikers overlooking the lake in New Hampshire, voted "Best State to Live in America" in 2020.

Squam Lake — a Lakes Region Treasure

This past summer, I was invited for lunch and a nice boat ride around Squam …

Read More →
Shop Local New Hampshire

Small Business Saturday in New Hampshire!

We have many things to be thankful for here in New Hampshire, plenty of natural …

Read More →
Couple downsizing to smaller home

Does Downsizing Your Home in Lakes Region Make Sense?

There are many things to consider when planning to sell your home to downsize into …

Read More →
Newfound Lake, New Hampshire

Newfound Lake is the 8th clearest lake in US

Newfound Lake is the 8th clearest lake in the United States New Hampshire has a …

Read More →
Echo Lake New Hampshire

New Hampshire Rankings are Impressive!

New Hampshire has always been fortunate to land in many of the country’s top 10 …

Read More →
Lakeside at Paugus Bay

Impressive New Construction in the Lakes Region

For new construction sales in New Hampshire’s Lakes Region, 2022 has shown very impressive results. …

Read More →
Inflation and housing prices

How Inflation Impacts Lakes Region Housing Prices

I was out with a friend this week on Squam Lake, and we were talking …

Read More →
Picture of author in the Grand Canyon

Is Lake Region Real Estate Drying Up Like The Southwest?

I just returned from a trip to Nevada, Arizona, and Utah this past week. Put …

Read More →
Brook Hill at Meredith: New luxury homes in Meredith, NH

Brisk Sales at Brook Hill in Meredith

Meredith— Sales at Brook Hill, a new luxury townhouse community in Meredith, have been exceptional …

Read More →

Impressive Sales at Lakeside at Paugus Bay

Laconia— Sales at Lakeside at Paugus Bay, a new luxury waterfront condominium community on Lake …

Read More →

Four Decades of Change in Lakes Region Real Estate

We were talking in the office the other day regarding how much the real estate …

Read More →
Supply and demand graph, real estate housing

The driving forces in the demand for NH housing

It is no secret that our country has seen some incredible growth in the real …

Read More →
Holderness, NH

Holderness Bridges Big Squam and Little Squam

Holderness is a lakeside community in the foothills of the white mountains on New Hampshire’s …

Read More →
high inflation

Energy & Ukraine Crisis Compared to 1970s Inflation

Russia’s invasion of Ukraine has emerged as a black swan event rattling the world during …

Read More →
Tilton, NH

Tilton — The Gateway to New Hampshire’s Lakes Region

Tilton, New Hampshire, is considered the gateway to New Hampshire’s beautiful Lakes Region because of …

Read More →
Map of USA: How Real Estate Trends affect the Lakes Region

How Real Estate Trends Affect the Lakes Region

New Hampshire’s Lakes Region & New Hampshire Can you believe a new analysis from Zillow …

Read More →
Laconia NH

Laconia, NH — A City on the Rise

The 17,000 resident “City on the Lakes” is nestled on the shores of three of …

Read More →
Two ice sailing enthusiasts on Lake Winnipesaukee.

Waterfront Sales Activity and Real Estate News

Here’s an update on the waterfront sales activity that we experienced over the past two …

Read More →
Tuftonboro, NH

Tuftonboro — “The Diamond in The Heart of New Hampshire”

Located just west of Wolfeboro, Tuftonboro is called “The Diamond in the Heart of New …

Read More →
Aerial view of Lake Winnisquam and Sanbornton, New Hampshire

The Rural Character of Sanbornton, New Hampshire

Sanbornton embodies all that one expects to find in an old New England town. This …

Read More →
Castle in The Clouds is one of Moultonborough's largest attractions.

Moultonborough’s 66 Miles of Shorefront Captivates

By landmass Moultonborough, NH is the largest lakefront community in the Lakes Region with 59.7 …

Read More →
Kevin Shaw - Roche Realty Group

Kevin Shaw of Roche Realty Group is Top Producer for 2021

Laconia— Frank Roche, president of Roche Realty Group with offices in Meredith and Laconia, recently …

Read More →
Wolfeboro, NH — The Oldest Summer Resort Town In America

Wolfeboro, NH — The Oldest Summer Resort Town In America

Wolfeboro: a Brief History Nestled in the foothills of the White Mountains and on the …

Read More →

Roche Realty Group Reports Record of $170 Million in Sales

Meredith- Frank Roche, President of Roche Realty Group, Inc, with offices in Meredith and Laconia, has …

Read More →
Meredith NH

Gilford and Meredith NH – How Do They Compare?

There are 25 towns and cities comprising the Lakes Region. This week I thought I …

Read More →

EM Heath, LLC Acquires 1084 Union Ave in Laconia

The future of Ace Hardware EM Heath LLC in Laconia became solidified this past week …

Read More →
Roche Realty Group Sells Landmark Commercial Building in Gilford, NH

Roche Realty Group Sells Landmark Gilford Commercial Building

Gilford- One of the most visible, historic landmark commercial properties in New Hampshire’s Lakes Region …

Read More →
New Commercial Constructioin in Lakes Region

Commercial Sales Increasing in the Lakes Region

Recently I’ve been outlining the sales activity for residential, waterfront, and multi-family apartments in the …

Read More →
Laconia NH Commercial Building Sale

New Owner for 8,447 Sqft. Commercial Building in Laconia

Laconia— Exciting news for the downtown Laconia district. Another substantial commercial building, including approximately 8,447 …

Read More →

Strong Demand for Multi-Family Apartments in NH’s Lakes Region

Last week I was driving through Loudon Road in Concord in the busy heights area, …

Read More →
NH Lake

Area Lakes Show Considerable Appreciation

Below you will find data and insight into what’s happening in sales activity on 8 …

Read More →
inflation in shopping center / grocery store

More Inflation Concerns

More Inflation Concerns I submitted an article a while ago titled “Is Our Current Inflation …

Read More →
Alpenrose Village Retail Center located at Rte. 11 B / Rte. 3 in Weirs Beach, Laconia

Roche Realty Group Sells Alpenrose Village Retail Center

Laconia, NH – Tom Drouin of Roche Realty Group in Meredith represented both the seller and the …

Read More →

Leave a Comment