How would you valuate this wholesale distribution business?

Question

We sell health and beauty products. Been in business about 3 years. Annual sales were $200k, 500k and 700k. We sell entirely online through four different sales channels. We sell to end-user 80% and wholesale 20%. We bought our own 2500 sq. foot warehouse 2 months ago. What is the best way to determine valuation on this business?

Answer 1

Using a multiplier of NET is the place to start. That is your baseline. Then anyone looking to buy you business they will be looking at stability. Three years is not bad, but five is better. Then they will be looking to see if your growth is sustainable. Is your building included? What is the cost to value.
You have obviously done a good job getting this business going. You may be the biggest asset of the company. As such, if you want to cash out, the company would be worth a lot less.
Again, as a previous responder said, there are many variables. There is no simple equation to value any company.
Good luck and congratulations for building a successful company. It's not easy.

Answer 2

In order to determine valuation of a business, you would need to know what the cash flow of the business is. This is done by taking the net before taxes (using Federal Tax Returns) and adding back any owner perks (Owners Salary, Depreciation, Interest Expense, Owner's Health Insurance, Owners Automobiles, Etc.). This will give you a cash flow figures. Most businesses will come in with a multiple of 1.5 to 2.5 times the cash flow number.

Answer 3

Forget all the theoretical stuff. Valuation is not a science but more of an art. 2 ways to do it:

1. Multiple of annual revenues (2X, 3X)
2. Comparables ("comps")

Your best best is this...

a. open up an excel spreadsheet
b. set up a list of comparables (that have been sold)
c. Try to figure out the slope of that line (y=mx+b) where Y is the valuation and X is annual sales
d. Figure out where you fit on that line

Answer 4

Ken, This website is a place to start:
http://www.dinkytown.net/java/BusinessValuation.html

Of course you should confirm any important issues such as valuation with your accountant or banker.

Answer 5

You can start by not stealing from pleople and not cheating on the taxes. How many people you already scam?
Enjoy your business while you can impostor.

Answer 6

talk to several Real Estate Agents. get them to each give you a price to sell it for. find an average. works great even if you don't plan on selling.

Answer 7

Ask a commercial realtor in your area, there is a straightforward formula to follow. I would assume you are valuing it to determine if you will sell it. Use their services, it is free.