Got a call today from an business owner who wanted to get my opinion on the value of his business before he put it on the BizBen Fast Track advertising program to sell it. He told me that he went out and hired a "Texas valuation firm" that is very well known and that they performed an "exhaustive" 45 page business valuation on his nutritional franchise store that he is attempting to sell.
In my opinion this owner (like many other unsuspecting small business owners) paid $3800 for a bunch of paper with some fancy looking formulas on it!
Some background on the store: Adjusted net income for the store for the last two years has been $236K per year, and has saleable inventory currently of $82K. Sales have been up over the last 3 years. It's located in a mall and has a good following. The valuation firm told the owner that he should easily expect to receive and market the business for a price of $1.15M!
Most stores like his sell for approximately 2.25 to 2.85 times the adjusted net income plus inventory.
Common sense and a little work with ROI computations proves that the appraised price that was "professionally performed" was nothing more than a sales job to get an overpriced valuation fee.
Small business owners need to be aware that there are "business valuation" firms out there that travel the country charging owners of small businesses ridiculous fee amounts to generate impressive looking valuation reports that supposedly help the owners sell their business to business buyers who need proof that the business is worth what the owner is asking. Most of the time the valuation amount is way too high, getting the owners hope up that they will be able to sell their business for that amount.
I guess that is one of the main reasons 70% of all small businesses put on the market to sell in California never end up doing so!
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