I'm looking at buying a small private business for my own account.
Does anybody have a simple but elegant valuation model that they can share with me?
Your help would be greatly appreciated.
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Comments
posted by guest
Sep 08, 2008 11:36AM
5:20pm - You are an ass that had to work late on a Friday. Sad. Go ahead and tell me how it is you proud Mini Balla, if it makes you feel anybetter. Now get back to your pitchbook.
3:54am - Thanks for your help. I ended up using a model from here: http://www.exinfm.com/free_spreadsheets.html
I needed something that a nonfinacial professional could understand and adjust as needed... ie - my private equity fund aka - dentists & lawyers
posted by Cincinnatus C
Sep 09, 2008 3:33PM
For a small fee i'll put together a DCF and market based approach, along with a value reconciliation and sensitivity analysisl am willing to sign a NDA, of acourse. I'ma lso willing to walk through teh valuation with you and your investors over teh phone or in a meeting.
The fee would cost substantiallly less than what a valuation prepared by a Big 4 or similar firm would charge, but be of comporable quality.
posted by guest
Sep 11, 2008 12:04PM
The guest at 5:20 is right on the money. If you are running a "private equity fund", you shouldn't be asking people on Dealbreaker how to value a company.
posted by guest
Sep 11, 2008 5:43PM
Cincinnatus C - Please see 11:36, got a simple model. I didn't have to modify it much. Thanks for following up.
12:04 - Please see 11:36, I'm doing a one off deal and needed a simple model that simple people could operate/understand. A model with 25 tabs and macros won't work for that. I would hardly call that "running a private equity fund." Please note I didn't ask them to how to value a company just for a model that I could use. You too may now go back to your pitchbook or packing your cardboard box depending on where you work/ed...
posted by guest
Sep 21, 2008 6:11AM
Don't worry about business models. Just use other people's money and get a lazy board. You'll be fine
Dick Fuld
posted by guest
Sep 24, 2008 9:54AM
You don't need a model to value your business. In the lower middle market, businesses typically sell for 4-7X EBITDA, depending on your industry, margins, and projections for future growth. Oftentimes, a deal is not 100% cash at close. Most deals I see (I'm a VP at middle market IBank) are structured with a significant cash payment at close, say 70%, and and 30% paid in either a eanrout or through a seller note.
posted by guest
Sep 24, 2008 3:19PM
Second what guest@9:54 said. Just don't forget to subtract any interest-bearing debt from and add cash to 4-7xEBITDA, else you will overpay.
posted by guest
Sep 30, 2008 4:47PM
I encourage you to learn the basics of valuation and corporate finance and get some experience in this field before even thinking about buying a private company.
I recommend two books that have helped me quite a bit along the way. For valuation, take a look at Investment Valuation by Damodaran (mentioned by another commenter and available for free on his website) and Valuation: Measuring and Managing the Values of Companies by Koller, Goedhart, and Wessels.
posted by guest
Sep 30, 2008 10:00PM
This may be controversial on this site but you may also consider taking a compressed valuation course such as Investment Banking Institute's 8-weekend modeling course, depending on your level of education or experience.
The biggest hurdle is valuing a private company; the guys that own it have to know what they have and how to explain it to you.
posted by guest
Oct 01, 2008 1:18AM
It's a terrible time to buy a business. You'll be paying a multiple of peak earnings which will likely decline dramatically in the future.
I wouldn't buy a business today unless you can get it for 3 times 2009 ebitda.
We are heading for Great Depression II.
Enjoy!
posted by guest
Oct 03, 2008 4:58PM
@1:18am, you're a fool. people like you are going to miss out on the rebound, only to join when the dow is back above 12,000
posted by andrewb
Oct 17, 2008 6:45PM
I'm thinking about becoming a professional football player and wonder if there's anyone on this board who has some tips regarding training regimens, etc. I haven't decided on what position I'd like to play, though I'm pretty sure it's not offensive tackle...it's the skill players who get the chicks, right!? Thanks for your help, and I'll see you all at the Super Bowl, suckers...
posted by guest
Oct 20, 2008 4:01AM
andrewb
They're a few well books out their about train'n and nutrition'n I would start they're. Never give-up on you're dreams you can do it just stay positive and focused and push threw the pane. In the future you mights want to post this at an NFL message bord specifically the team you want to play fours web site. That way the couch will no your serious and will be on the looks out for your improvements.
SPODE
posted by guest
Oct 22, 2008 1:28PM
Forget buying a business, we should all play professional lacrosse! We could be rich.
Does anyone have an idea on how I should start? I think it to late for me to play for Duke?
posted by guest
Oct 26, 2008 11:02AM
Business Valuators are not as expensive as you think. They can give you all of the essential business ratios and specific "units of measure" that are key to the exact type of business you are in.
A DCF or PV calculation is fine, but it's very one-dimensional. You need to be aware of what the key metrics used by your competitors are, you need to grasp the real value of any materials or inventory there is, what is the true value of any goodwill, patents, trademarks, etc, and what is the customary value of "goodwill" in your chosen business / industry.
Without knowing any of this, you are flying blind my friend. Flying blind.
posted by guest
Oct 27, 2008 9:18AM
A: This isn't a guy running a "private equity fund"
B: This is a guy buying a small business and its always a good time to work for yourself.
C: This is the perfect time to squeeze valuations down due to weak a economy. 1. I can't get the leverage.
2. The earnings and growth aren't safe.
-so I'll have to get a good deal.
posted by guest
Oct 27, 2008 3:57PM
9:18:
A - You are correct, thank you for understanding.
B - You are correct, I didn't have as much of a choice as I would have liked in that working for myself area.
C - You are correct, have you bugged my communications? I think the seller is going to get with the program.
I will soon be the proud owner of the nicest Subway/ Quickie Mart/ motel/ tanning salon in all of Hartford, CT.
Please stop by, I will need your business.
posted by guest
Nov 03, 2008 4:16PM
Owner's actual cash flow (not the accounting concept but the legal tender itself) from all sources - salaries, dividends, debt repayments, expenses paid - before taxes is a robust metric. In the current market anything more than 3 times the actual cash benefits received from ownership would be excessive, given the risks that next year the amount of legal tender paid out or to the owner's benefit will be less than either you or the seller can imagine. EBITDA is a worthless construct because it ignores how much of a business' "earnings" can be in receivables that are never collected and work-in-progress and inventory that has yet to be written down. The poke always has more gristle in it than pig.
posted by guest
Nov 07, 2008 10:50AM
I just purchased a small business in August. Normally small businesses, that I looked at, were asking 4-5 X EBITDA. I look to buy around a 3 multiple, but actually purchased this firm around 2.5 X 2009 projected EBITDA. You would be amazed at how little business owner and their advisers understand about valuation.
posted by guest
Nov 11, 2008 2:43PM
It's simple.
Present value of expected future cash flows. Since future cash flows are expected to be zero for 9 out of 10 businesses, 90% of the times you should bid zero for the business, and the remaining 10% of the times ask the seller to pay you for the liability you are taking on.
Simple and elegant.
posted by guest
Nov 12, 2008 10:10AM
Lol @ 2:43pm. You win!
Next time, on Dealbreaker:
"I have a bridge to sell you.... how much are you willing to pay?"
posted by guest
Nov 20, 2008 4:38PM
http://pages.stern.nyu.edu/~adamodar/
this is Asith Damodaran's website.. he has a lot of valuation models here and ways to use it ... pretty cool...i don't know what you want and how big this business etc is but this should suit you for all your needs ....
Regards
John
posted by guest
Nov 22, 2008 8:26PM
dream on idiots....2008 is no time to buy anything...you guys probably recommended C in April. Get your shit together, sit in the bush until 2009, save your powder and wait until you see the whites of their eyes.
Slater
posted by guest
Nov 25, 2008 11:00AM
Don't buy anything unless you have an understanding of the market. Everything except cash could be totally worthless if they missed important technology in their market.
posted by guest
Nov 27, 2008 5:15PM
GD 2.0 fools!!! DCF, xEBITDA, all useless! Tell me how the quants' models are doing this year ? 10 deviation moves and VIX in the 80s' will destroy any and all models! Burn your clients' money if they like but please do advise them, especially the clueless lawyers and dentists type, that earning contraction is the least of their worries. Heck, burn their money in a bon-fire. At least it's quick, it keeps you warm rather than the slow bleed of a dying business! GD 2.0 fools!!
posted by guest
Dec 16, 2008 3:54PM
5:15 - You really don't get it. VIX has nothing to do with a Subway franchise or an auto repair shop. No quant model either.
Bitter much?
posted by guest
Dec 19, 2008 3:03PM
12/16 3:54
How clueless are u ? VIX has everything to do with a Subway franchise or "holy crap" an auto repair shop, you know how to pick a winner don't you. Don't be a tool. This is a credit collapse. When the "market", i.e., VIX, is telling you how screw up things are, business valuation is "meaningless". It's like trying to play golf in the middle of a hurricane and you're checking the wind condition and direction for your next tee. Sheeeshuss, I really have to explain this to you like a 2-year old ? Bitter ? Hell yeah, I'm bitter that I am sharing this planet with tools like you who don't know the difference between reality and a model. Business valuation is base on a model. Model a 25 deviation move pal!
posted by guest
Dec 20, 2008 12:39AM
@3:03
Holy hell you dickless wonder. Strap-on a pair. Your storm analogy is an interesting one-- realize that in such a storm it's often the little places that are left alone. Yes, VIX has something to do with the *much* larger market, but really that's a near-meaningless extrapolation to the very particular local instance.
You may even know something about equities, but that's apples and oranges from understanding the operations of a local business; some are actually going to do quite well in this environment
Credit's an obvious issue, but -- even in this market -- an easily manageable one. Let's go with those business examples: the earnings of an auto repair shop are largely from non-discretionary spending, and actually will increase as new car-sales decrease and the population of cars on the road ages.
Even revenues from a god-forsaken subway are less likely to be impacted; hell, I'd bet sales are increasing as it caters to a relatively captive lunch-crowd that's increasingly looking for the cheap eats. Not going out to a restaurant for lunch anymore? That's pushing some people to the Subway.
For these businesses, ebitda is much more stable; the overhead and debt are the worrisome parts, and lease agreements are on much more favorable terms right now. And then there's the broader argument, that in a market marked by uncertainty, consumers look local/established.
I'd still wait off buying a small business for at least a 9mo, but not because of concerns about the VIX(!!!) -- because such small businesses are owned by a demographic of baby-boomers who are already being pushed out and will be outright *forced to sell because of age* over the next 5-10yrs en masse... that's going to be a real shit-show.
And for those clocking me, I'm up sleepless, posting this post-coital from my dumbass but well-hung bf, waiting for him to fuck me again so I can sleep -- we've all got to do something...
posted by guest
Jan 08, 2009 5:53PM
if you are trying to value a small, simple company, try www.easybusinessvalue.com.
posted by guest
Jan 14, 2009 6:10PM
5:38 - Maybe people find it of interest. Your diligence and reasoning abilities are second to none. Carry on...
posted by guest
Jan 20, 2009 7:33AM
You should look at a valuation model of 3-6 times EBITDA with a floor of 1Xs sales.
posted by guest
Jan 28, 2009 9:57PM
As a owner of a 3 Subways I would recommend maintaining a ceiling of 1x sales (almost to simple..).
With that being said I typically try to buy small businesses at 3-4x EBITDA (using my own pro-forma b/c you simply can not trust the #s of any current owner...too easy to manipulate).
Final words of wisdom (somewhat valuation related), assuming you are not going to own the real estate, pay particular attention to the lease and remodel requirements. Additional capital requirements in the near term could challenge the valuation and kill your ROIC.
posted by guest
Feb 03, 2009 11:51PM
You could try this small business valuation model template.
Will cost you a small amount of change but probably worth it compared to your acquisition value:
http://www.financialmodelingguide.com/valuation-concepts/small-business-valuation/
posted by guest
Feb 23, 2009 4:04PM
cheap but good private equity models at www.privateequity101.org
posted by guest
Sep 05, 2008 5:20PM
If you don't have/ know how to build your own valuation model, you probably shouldn't be buying any sort of business...
That being said, if you want simple- just PV projected future cashflows... how elegant!