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BFS Capital Blog

How to Place a Value on Your Small Business

April 29, 2013

Small business owners, as a group, are known for their diligence, energy and commitment. They work long and hard to build successful businesses. But here’s some surprising insight: Experts believe that many, if not most, small business owners don’t know the true value of their businesses until they want to sell it.

But despite the many competing demands of managing a business day-to-day, current thinking is that business owners should approach the process of valuing their businesses as a necessary and critical part of running it. This applies to businesses in every sector, and seasonal businesses have some unique challenges in valuation.

Where to begin? First, it helps to know something about the various methods for calculating the value of a business and the resources available for doing it, that now include user-friendly software programs, online services and an iPhone app. Click here to learn more.

But some caution that while online services provide an approximation of value, other kinds of resources—notably, those that are hands on—can offer more detailed and more accurate pictures of your business’s value. This list can include business brokers, trade associationsand industry-specific consulting firms. On the high end are certified appraisers at large public accounting firms. The best approach for your business depends on a variety of factors, not the least of which is when (or whether) you intend to sell the business.

What about valuing a seasonal business? BizEquity.com founder Matt Taulli explains this for one of the most popular seasonal businesses in the country, flower shops, who see major spikes at Christmas/Hanukkah, Mother’s Day, Valentine’s Day and Easter/Passover. Flower retailers are a $30 billion-plus industry, whose members import the lion’s share of their perishable products. This is a definite factor in how business assets, for example, are valued.

Taulli suggests that on a day-to-day basis, knowing some fundamentals and following some basic rules of thumb can yield a calculation that is very close and very useful. Plus, it can save you thousands of dollars. To calculate the value of your flower shop, Taulli says to first focus on the key factors that drive valuation:

    • Location: The local economy has a huge impact on flower shops, so you should look at things like community income levels and competition. Don’t forget to factor in grocery stores and big-box retailers, who are selling flowers more and more.
    • Reputation: Subjective but critical. Look to suppliers and distributors, as well as online review sites such as Yelp.com.
    • Facilities: Goes without saying: An attractive, well-lit environment doesn’t include cracked walls and leaky floors.
    • Other factors: Major ones to consider include foot traffic and access to parking.

To actually crunch the numbers, Taulli walks through sample financials by applying a basic formula—one that comes from Paul Goodman, CPA, a well-known consultant to the floral business. Follow the example here, and read more about the valuation process. Better yet, request your very own information packet on valuing a florist business, as well as a list of consultants that can help, from the Society of American Florists (www.safnow.org).

Image courtesy of  David Castillo Dominici / FreeDigitalPhotos.net