Valuing a business is not an exact science - most people believe it to be equivalent to rocket science. Some discounted cash flow models we've seen look like a map of the human genome. The initial steps in business valuation should be baby steps, simple. Let's face it; a business is worth what somebody is prepared to pay for it - period.
Rules of Thumb for Business Valuations
Thinking of selling your fitness club or gym? Most businesses, including health clubs, fitness clubs, and gyms, are valued based on a multiple of the cash flow they generate. These rules of thumb are used by business brokers, buyers and lenders to get a ballpark idea of the value of a fitness club or gym. The selling price includes all of the equipment, fixtures, and other assets that are necessary to run your club or gym. If you own the real estate and want to include that in the transaction as well, then you would add the fair market value of your real estate to the asking price for your club or gym. Using valuation rules of thumb will give you a rough idea of what your club or gym is worth.
6 Rules of Thumb for Business Valuation
Last month we took a high-level look at different approaches to valuing a company. We noted that, because of their ability to reflect the future economic benefits of an ongoing business, cash flow methodologies are most commonly used in business valuation. These include applying a multiple to an income or cash flow number, capitalizing cash flows, and discounting cash flows.
So what are the rules of thumb for business valuation? There are many acceptable business valuation methods. One may be more suitable than another, depending on the type of business being valued, including its industry, size and circumstances of sale. The owner should gather the financial records for the past three years including: an income statement, a cash flow statement and a balance sheet. If the business hasn't been operating for three years, consider using a projection model.