Nilesh Dalwadi, Author at Bizprorealty

How to Determine “Business Value”?

Nilesh Dalwadi — Wed, 20 Sep 2023 18:42:33 +0000

When it comes to a small business sale, a most confusing question to a seller is “How much my business can get me?” and to a buyer is “What price should I offer?

There are various opinions and methods prevailing in the market to value a business. Some are logical and some are just popular. Among the most prevalent methods are the use of income or revenue multipliers, although they are less logically sound but widely accepted. For instance, multiplying gross annual revenue by two or three, or EBIT(Earning Before Interest & Taxes) by four or five.

Most logical one is the multiplier SDE – Seller’s Discretionary Income. Simple meaning of SDE is how much a business owner operator can make annually which includes his own salary? SDE is multiplied with a number to determine the business value, and that number is derived from recent sales of similar businesses.

Actually, there are various other factors besides the business numbers which also play important role in determining the business value like, type of business, trade name, goodwill, current market value of business asset, lease agreement, competition, growth potential and some more. That’s where an experienced professional’s role is vital in assessing a business value !

Valuing a business is a very complex subject and not possible to derive a single consented value. It defers with individuals based on their objectives in the business selling process. Ultimately, like any other product or service, the market dictates the value of a business. The prevailing demand and supply dynamics at the time of sale also remain an influential factor in establishing the current value of a business.

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Business Buyer should understand the difference between ‘Due Diligence’ and ‘Audit’

Nilesh Dalwadi — Fri, 18 Aug 2023 13:56:12 +0000

Often, buyers find themselves in a state of confusion when conducting their due diligence following a conditional agreement to acquire a business. They become entangled in the process of identifying flaws in the current business operations and the seller. This leads to feelings of panic, causing them to overlook positive aspects and occasionally drop down a favorable business opportunity. Subsequently, they may experience regret upon realizing their oversight on major pluses. Not only getting into a wrong business is a mistake, but also not being able to identify a right business is also a mistake! People usually do not evaluate the ‘Opportunity Loss’. Be careful and be clear on your purpose and stay focused when you perform your due diligence.

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Should you purchase an existing business or initiate a new one?

Nilesh Dalwadi — Sat, 22 Jul 2023 06:11:53 +0000

Each alternative carries its own advantages and disadvantages.

Opting for an established business offers greater predictability compared to embarking on a fresh startup. While history might not necessarily repeat itself or remain consistent, there exists a foundation for the buyer to anticipate outcomes. The buyer can decide an offering price based on the historical performance of the business. Many a times, a resale business is cheaper option than constructing a new business from the ground up.

On the other hand, commencing a new startup is starting from a scratch. Foreseeing the end result is challenging. Achieving the breakeven point requires a considerable amount of time. Nonetheless, the good side is, if the startup flourishes, the return on investment and the business value can skyrocket.

No unanimous superior choice exists. However, an individual with extensive and successful industry experience has a greater chance of success when pursuing a startup. Conversely, someone with limited or no industry exposure can significantly reduce their risk by opting to acquire an established business.

Please leave your comments if you have your personal experience to share…..!

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