Cost Comparative Valuation

Cost comparative valuation for the following information: Business is a Doggie Cafe All business owners want to know what their business is worth. Valuation is helpful in an exit strategy to determine what you are willing to sell your business for, and what a potential buyer is willing to pay. There are various methods to apply standard variation to a business, but every circumstance is different and even with standard methods, buyers may still propose different offers. With my business still being developed, it is hard to determine what the business is valued at, as we haven’t even begun operating. we have no profit to base anything off of, but we can make estimates. One of the most simple methods of valuation is the profit multiplier method. It takes a company’s adjusted net profit and multiply it by a number, a multiple. Each industry has certain multiples they use on average, but it is still up to the business to choose the multiple. An example is if a company’s net profit is $100,000 per year, and the business chooses to use a multiple of 4, then the value would be 4 x $100,000 = $400,000. What this actually means is that as long as the business is consistent with their profits each year, the potential buyer would get roughly $100,000 per year for the $400,000 investment, and after four years they would get the full return on investment. In terms of my dog caf business, we have estimated a revenue of approximately $160,000 per year on the conservative end, and $320,000 per year on the higher end.we have estimated expenses of $80,000, so those profit numbers would come out to $80,000 on the low end, and $240,000 on the high end. According to an article on Exit Advisor, “if pre-tax profit is used, commonly applied profit multiples for small businesses would be between 3 to 4, and occasionally 5”. (Laidre, 2018) Taking that into consideration,we would choose a multiple of 3. That puts the value at $240,000 on the low end, $720,000 on the high end. References to use Taulli, T. (2007, August 8). Putting a value on a new venture. Retrieved from Bloomberg Business Grossman, M. (.). How to value your start-up for venture capital. Retrieved from Startup Junkies McClure, B. (2011, May 30). Valuing startup ventures. Retrieved from Investopedia